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May 2020 | Technology

John Dobson: Discard manual AML checks

John Dobson is chief executive of SmartSearch

The advent of social distancing has highlighted the shortcomings of many outdated business processes.

With lockdown restrictions in place, it simply hasn’t been feasible to conduct business face-to-face, and the physical exchange of documents has also been all but impossible.

The Financial Conduct Authority (FCA) has – unwisely in my view – let it be known that it will temporarily allow firms to use various workarounds for their know your customer (KYC) and anti-money laundering (AML) due diligence.

It’s clear, however, that scanned PDF documents and ‘selfie’ photos and videos are not sustainable.

It is hard to imagine that this approach will be allowed to continue, as it simply makes life too easy for money launderers.

Firms that are currently relying on the hotchpotch of measures set out by the FCA need to think about a back-up plan for when these workarounds are no longer deemed acceptable.

Otherwise, they could find themselves unable to take on new business.

There is now some suggestion that restrictions may be eased, and it is tempting to think that firms might be able to go back to physical document checks.

This would be a mistake for several reasons. First, it is clear that any easing of restrictions will be partial and phased. Even if some retail and catering facilities are permitted to reopen soon, it is unlikely that office workers will be part of this initial phase, so the problems associated with manual document checks will remain.

We also have no way of knowing if and when we will all need to go back into lockdown. In the absence of an effective (and widely available) vaccine, we could face several ‘waves’ of these restrictions.

Even if a vaccine is developed quickly, there is no guarantee that another pandemic – a mutation of COVID-19 or something totally different – will not materialise. From now on, business continuity plans will need to reflect the possibility of another major public health emergency, a risk that arguably overshadows even that of a terrorist attack.

This will include making provisions for staff working remotely. But the most important reason it would be a mistake to cling to manual document checks is that they are simply unnecessary.

Fully digital solutions are available that can completely remove the need for physical documents to change hands, while allowing firms to remain 100% in compliance with regulations, regardless of where their staff work.

Electronic verification is not only more convenient, it is also more cost-effective, especially when you consider that a full check can be performed in a matter of seconds. It is also much more secure, eliminating the possibility of fake or falsified documents being used.

It shouldn’t take the threat of a global pandemic to force businesses to discard outdated practices, but if they are still clinging to manual ID checks, this should at least serve as a very loud wake-up call