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Lending Technology Is Smashing Through Stricter Know-Your-Customer Rules

The Biden administration is set to increase financial-crimes enforcement by $64 million this year, reaching a total annual budget of $191 million. This significant 50% spending boost is a direct response to the surge in “illicit actors,” such as mobsters, terrorists, and corrupt politicians, exploiting “loopholes in financial-reporting requirements.” These individuals often engage with digital currency exchanges like Coinbase, Cash App, and Binance or employ complex corporate ownership structures to confound regulators and tax authorities. Budget increase emphasizes vital “know your client” (KYC) and “anti-money laundering” (AML) practices in all lending technology, regardless of banking status. For various entities like retailers, manufacturers, suppliers, and service providers, meeting these requirements might initially appear as a hurdle to offering in-house financing for purchases. Nevertheless, technological advancements provide solutions to navigate these challenges.

Since May 2018, the US has tightened AML requirements for lenders through the Financial Crimes Enforcement Network under the Treasury. Thomson Reuters notes a 22% rise in onboarding time for financial-service clients in the first year of new AML requirements.

Surveying the KYC/AML landscape, it becomes evident that mitigating the risk of unintentionally engaging with malicious actors during the provision of financing requires a three-pronged approach:
Best-in-class KYC software: Implementing advanced KYC software can streamline the verification of customer identities, ensuring compliance with regulations.
Regulatory specialists provide staff with thorough AML training, ensuring proficiency in navigating changing regulations.
Continuous monitoring, aided by technology, helps promptly identify and respond to any suspicious activities.
Recognizing that each jurisdiction has its unique regulatory landscape, it is crucial for lenders to adapt to varying compliance requirements. While the US leads in regulatory stringency, Europe, Asia Pacific, and the Middle East closely follow suit. In 2020, companies faced $10.4 billion in fines for non-compliance with AML and KYC protocols, representing a 27% increase from the previous year, according to Fenergo.

Lenders, under increased scrutiny, must verify customer identities, validate funds, and assess money-laundering risks. Technology streamlines due diligence through automation, blacklist management, jurisdiction-specific compliance, and monitoring financial and social-media activities. This automation not only accelerates onboarding and approval processes but also ensures ongoing compliance. To stay ahead, lenders should embrace automated solutions with AI, machine learning, natural-language processing, neural networks, and fuzzy logic. These technologies enable software systems to “think” and “learn” over time, enhancing the accuracy of outcome predictions. The implementation of an advanced automated lending platform can efficiently handle customer analysis, from low-risk to high-risk scenarios. Compliance is not a one-time step but an ongoing process, necessitating periodic or continuous due diligence, oversight, and data archiving. Vergent LMS integrates compliance functionality into its advanced lending software, ensuring ongoing oversight and regulatory compliance.

In conclusion, the increasing regulatory pressure demands that lenders embrace technology to automate and enhance their KYC and AML procedures. This not only facilitates compliance but also ensures a smoother lending process, reducing friction associated with in-house financing.


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