Across the globe, it seems as though various countries have their own laws regulating identification and KYC requirements. Some companies are more aggressive with these requirements to cut back on money laundering and the funneling of terrorist funds. Other countries have been laxer about these standards.
One set of countries that have been strict about KYC remediation rules is Latin America. Latin American regulations are consistent with other countries throughout the world, with organizations encouraged to automate the ID and KYC process.
Latin American Countries Have Been On The Forefront Of KYC Regulation
In late 2014, Latin American countries were given access to a tool known as The KYC Registry. Within a year of its release, more than 100 financial institutions had adopted it and used it regularly. Although many companies did not forgo their existing compliance programs, they used The KYC Registry as a compliment. The Registry quickly gained notoriety because it had been endorsed by numerous governments or Central Banks, including those from:
• Costa Rica
• Dominican Republic
Within a year, at least one bank in every Latin American country had begun using the KYC registry. Companies had said that they found The Registry efficient and able to help banks implement a more reliable compliance program. The KYC Registry was awarded multiple awards in 2015, including “Compliance Project of the Year” by a publication called “The Banker.
Argentina Implements New KYC Regulations
In 2017, Argentina put measures in place to further enhance its KYC regulations. These regulations defined guidelines for anti-money laundering, terrorist financing, and a proper risk management approach. One of the most significant changes outlined in these laws was the AML/TF prevention system, which stressed risk management and compliance.
Another significant change was the implementation of an external auditor’s report. The auditor’s report requires that each financial institution’s prevention system be audited by an independent third party each year. The auditor is expected to issue a statement that highlights the strengths and weaknesses of the existing program while recommending changes to make.
The Argentinean regulations also stressed that companies self-evaluate their riskiness. The rules recommend that companies do this based on how much commercial activity they conduct from year to year. The provisions also suggested that companies evaluated these processes at the end of each year and make adjustments accordingly.
Why KYC Regulation Is Important
As the internet has become more prominent, so too has the risk of criminals using the platform to conduct illegal activities. KYC regulations help cut down on the likelihood of risky or illegal behaviors. Take, for example, the Fifth Anti-Money Laundering Directive that European officials put in place after the terrorist attacks in Paris and Brussels. Officials determined that these attacks were terrorist-funded and that proper verification could have prevented the attacks.
Not only is KYC Regulation important, but it’s also critical that organizations share information. Consider it similar to a puzzle. If you only have one piece of information, you may not be able to identify risky behavior. But if you have multiple sections of the puzzle, it could be significantly more apparent that a criminal is attempting risky behavior.
That’s one of the most impressive things about KYC regulations in Latin American – countries got on board with The KYC Registry early on, and have continued to use it over the past couple of years. The coordination and sharing of information with one another helps keep companies safe while cutting back on the likelihood of fraudulent activity.
Usefulness For Customers
Updated KYC remediation and ID verification efforts also help benefit consumers as well. For instance, in years past, customers would have to wait for days, and potentially months, before receiving confirmation that they were approved for a transaction. Now, automated ID authentication processes rely on the algorithm so that customers can be confirmed in real time.
Depending on the nature of the business, how quickly a customer is verified is critical. For instance, many Forex exchanges require two-way authentication. As you can imagine, since the Forex market is continually moving, the ability to make transactions in real time is essential. This is possible with automated ID verification, but it is not possible with outdated methods.
KYC Regulations Moving Forward
Monitoring KYC regulations in Latin America moving forward will be interesting. Countries have also been innovative about the need for KYC regulations and automated ID processes, but they’ll continue to need to be so as criminals become more and more creative with ways to launder money.
Europe passed their Fifth Anti-Money Laundering Directive within a couple of years of adopting the Fourth Directive. By investing in high-quality systems, there’s a strong chance that these systems will last for years and meet regulations that have yet to be passed. We wouldn’t be surprised to see updated Latin America KYC regulations again in the future.