What is AML customer onboarding?

When compliance teams are designing a customer onboarding journey, firms have to balance their regulatory requirements against budgets, resources, and customer service needs. 

To do this, businesses should understand their responsibilities during onboarding and the technology tools available to enhance the process as part of their broader AML/CFT program.

What does AML customer onboarding involve?

AML customer onboarding is the first step towards a customer relationship, where financial institutions and other regulated entities must collect a range of important information about their customers as part of the customer due diligence (CDD) and know your customer (KYC) process. By obtaining this information, firms can establish that their customers are who they say they are and are being truthful about the nature of the business they are involved in.

The key components of AML customer onboarding 

An effective AML customer onboarding process involves:

• Identity verification: Firms should confirm the identity of prospective customers with documentation verifying key details such as their name, address, date of birth, and national insurance or social security number. 
• Customer due diligence: After the completion of essential identity checks, institutions should assess the level of risk a customer presents by conducting source of funds (SOF) and source of wealth (SOW) checks, establishing ultimate beneficial ownership (UBO), and screening them against lists of politically exposed persons (PEPs), sanctions and watchlists, high-risk jurisdictions, and criminal registries of those involved in bribery or corruption. If a customer’s risk profile suggests further checks are required before establishing a business relationship, firms can move on to enhanced due diligence (EDD). 
• Record-keeping: Any data collected as part of KYC and CDD processes should be stored as per the requirements of local regulation – in the UK, for example, this is for five years after the termination of the business relationship.
• Reporting: Any red flags relating to money laundering or terrorist financing must be reported, first internally and then, if deemed necessary, by an AML compliance officer or team to the relevant authorities. 

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AML regulations for customer onboarding

As with AML in general, customer onboarding is heavily shaped by regulations, and local legislation should be consulted. This is a brief overview of key regulatory requirements in certain jurisdictions. 

• United Kingdom: In the UK, the Proceeds of Crime Act (POCA) determines AML/CFT measures, supported by other legislation such as the Terrorism Act, and the Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations (MLRs). Firms must implement an AML compliance program that involves customer due diligence (CDD) requirements such as adverse media screening, PEP screening, and sanctions screening. 
• United States: Under the terms of the Patriot Act, firms are legally required to verify their customers’ identities and maintain records for ongoing identification purposes, as well as screening customers against the Specially Designated Nationals List (SDNL). The Bank Secrecy Act (BSA) also stipulates that institutions should put an AML compliance program in place, of which customer onboarding is a crucial part. 
• European Union: The EU’s AML framework consists of a series of Anti Money Laundering Directives (AMLD), the latest of which is the ‘new’ Sixth AMLD. As translated into the domestic legislation of EU member states, AMLD requirements relating to customer onboarding include CDD and enhanced risk mitigation measures in the involvement of high-risk jurisdictions.  

What type of businesses need to conduct AML client onboarding?

All businesses subject to AML regulations need to conduct AML client onboarding. The exact list of these will vary between jurisdictions, but in general, will include financial institutions such as: 

• Banks 
• Credit unions 
• Capital markets firms 
• Brokerage firms 
• Insurers 
• Virtual asset service providers

Besides the financial sector, certain other businesses are also subject to regulations and, therefore, need to implement AML client onboarding. These can include: 

• Casinos 
• Estate and lettings agents 
• Accountancy firms 
• High-value dealers 

The challenges of AML customer onboarding

AML customer onboarding is a vital process for firms subject to AML regulation, but it comes with challenges. Among the most pressing are:  

• Balancing customer service with regulatory requirements: Comprehensive AML regulations mandate a stringent, detailed approach to customer onboarding – which risks compromising customer experience and satisfaction. Balancing these two objectives is crucial for any business. 
• Keeping up with changing regulation: In addition to having potentially far-reaching effects on business operations, AML regulations are subject to relatively frequent updates. Because methods of money laundering and terrorist financing are constantly evolving, the same is true of the legislation to protect against these activities. To ensure AML compliance on an ongoing basis, firms must keep pace with these changes. 
• Determining customer risk levels: The risk assessment process is a vital part of AML customer onboarding, but it also requires detailed checks, particularly when EDD is deemed necessary. Screening for PEPs, adverse media, sanctions, watchlists, criminal registries, and high-risk jurisdictions can take up more of a firm’s time than it can afford to devote if not undertaken efficiently. 
• Maintaining expertise: The onboarding process, like AML compliance more generally, requires specialist knowledge and training. Institutions undertaking AML onboarding must ensure that they hire and train individuals and teams with the requisite level of expertise. 

Best practices for efficient AML customer onboarding 

To meet these challenges, there are certain best practices that firms should follow during customer onboarding, allowing them to begin new customer relationships with ease while complying with AML regulations. 

1. Practice a risk-based approach: Given the need to balance AML requirements with business objectives, a risk-based approach ensures that firms do not waste time and resources on bloated onboarding procedures. Factoring in the kinds of risk a particular institution might face, establishing the correct level of CDD to conduct on customers, and tailoring onboarding approaches to different jurisdictions and markets are all examples of a risk-based approach. 
2. Reduce customer pain points: Needlessly complicated, difficult, or lengthy AML onboarding processes risk reducing customer satisfaction and may prevent a business from gaining customers. Identity verification should be optimized for quick and seamless onboarding, ideally in a way that only requires the customer to upload documents to one platform. 
3. Conduct ongoing training and audits for teams: A dedicated AML compliance officer to design and oversee effective AML onboarding procedures is essential, but should not be the end point of a firm’s readiness to meet onboarding challenges. Across the organization, teams should receive ongoing training to ensure they are up to date on AML requirements and are well-equipped to enact the relevant policies at onboarding. In addition to staff training, onboarding programs should undergo audits on a regular basis to identify weaknesses and make improvements where needed. 
4. Find an AML software solution: Relying on purely manual processes is not sustainable and increases the potential for error. In response to the volume of data required for effective onboarding, and the increasing regulatory complexity of AML regulations, highly capable software solutions have been developed that leverage machine learning (ML) to streamline the process. Finding the right AI solution and combining it with human expertise in AML detection and reporting is now a crucial step for any firm evaluating its onboarding procedures. 

The importance of automating customer onboarding

Automation can help firms strike the difficult balance between meeting compliance requirements and customer service objectives. The following are all specific benefits of automation: 

• Compliance performance: Undertaken manually, compliance will be a drawn-out, complicated process that lends itself to human error. Automation leads to enhanced procedural accuracy during onboarding and can be quickly adjusted in response to regulatory changes to ensure ongoing compliance. 
• Speed and simplicity: Effective KYC and CDD can be costly and time-consuming. Automating the process with AML compliance software makes it quicker and more efficient for financial institutions, since this software can handle much more data than manual teams. 
• Enhanced customer service: Reduced onboarding times allow for minimal friction on the customer side, laying a strong foundation for business-customer relationships. 
• Record-keeping and data storage: Customer onboarding requires the collection of a significant amount of KYC/CDD data, which then needs to be stored in case of future reports or audits. Automation can simplify how firms store and access this data, expediting AML compliance processes. 
• Scalability: Beyond its immediate effects on AML onboarding, automation software can be implemented to scale alongside businesses, so that their growth doesn’t have to be slowed down by compliance. 

Market-leading customer onboarding solutions

Institutions across the financial landscape rely on ComplyAdvantage for AML customer onboarding, which balances compliance requirements with business growth. They benefit from: 

• Cutting-edge AI-powered matching algorithms that allow firms to quickly screen customers against risk factors, including sanctions, watchlists, adverse media, PEPs, and enforcement data. 
• Automated risk assessments and convenient access to customer profiles on a single screen, which lets compliance teams prioritize onboarding cases and focus on customers who carry a higher level of potential risk.
• A comprehensive record of all case decisions in one place, which means they can be easily accessed by compliance teams and ensures optimal preparedness for ongoing audits.