Expert Shares Guide to Avoid Common Mistakes Small Businesses Make with KYC, AML

The Founder of Sascon LLC, Osaigbovo Edegbe, has shared a valuable guide on avoiding nine of the most common mistakes small businesses make with Know Your Customer (KYC) and Anti-Money Laundering (AML) compliance.

According to the KYC and AML expert, small businesses often struggle to implement KYC and AML compliance.

“These compliance measures are essential to preventing money laundering and terrorist financing, and failing to comply with them can result in significant legal and financial consequences,” she outlined.

Unfortunately, says Edegbe, many small businesses make common mistakes that can put them at risk.

Getting Familiar with KYC Requirements

The expert described KYC as a crucial aspect of AML compliance. “As a small business owner, you must know your customers and be able to verify their identities to prevent money laundering and terrorist financing,” she cautioned.

However, she decried that many small businesses fail to implement adequate KYC measures, which can lead to severe consequences.

To mitigate risks, the Sascon LLC founder recommended developing a robust KYC framework you and your team can implement in all your business transactions.

Lack of Employee Training

In the words of Edegbe, small businesses often overlook the significance of employee training regarding KYC and AML compliance.

As an employer of labour, she hinted, KYC and AML regulations require that you and your employees are trained adequately to identify suspicious activities, the procedures for reporting it/them, and the potential consequences of non-compliance.

She further charged employers. “Ensure your employees receive regular KYC and AML compliance training and implement internal compliance measures to avoid penalties and legal issues.”

Ignoring Red Flags

If something looks suspicious, Edegbe warned, it probably is. Accordingly, she argued that as a small business owner, ignoring red flags such as unusual transaction patterns or suspicious activity in your customers’ behaviours can harm your business.

She emphasised: “These red flags could indicate money laundering or terrorist financing, and ignoring them can lead to severe consequences. Be vigilant, proactive and take appropriate actions as soon as you notice them.”

Insufficient Customer Due Diligence (CDD)

For the expert, customer due diligence is a critical component of KYC and AML compliance.

She underscored the need for small businesses to collect and verify their customers’ information and assess their associated risks.

“Failing to conduct sufficient CDD can lead to legal issues and reputational damage,” she warned.

Inadequate Record-Keeping

Small businesses must maintain accurate and up-to-date records to demonstrate their compliance with KYC and AML regulations.

Failing to keep adequate records can lead to legal and regulatory issues. Make sure that you have an effective record-keeping system to ensure compliance.

Poor Risk Assessment

As you engage with your customers and clients in business, Edegbe maintained that it is crucial to conduct a risk assessment to identify high-risk customers and transactions.

She warned that a poor risk assessment could lead to inadequate KYC and AML measures and leave businesses vulnerable to money laundering and terrorist financing.

“Ensure that you conduct a thorough risk assessment and implement appropriate measures,” says the KYC and AML expert.

Relying on Third Parties

“Small businesses often rely on third-party vendors, suppliers, or partners to conduct KYC and AML measures.

“These third parties are also subject to the KYC and AML requirements that regulate your business, and failing to conduct due diligence on these third parties can lead to legal and regulatory issues and financial risks,” says Edegbe.

To protect your business long-term, ensure that you perform adequate due diligence on any third parties you work with.

Inadequate Reporting of Suspicious Activity

With the rate of fraudsters lurking for prey, the Sascon founder insisted that small businesses must report suspicious activity to relevant authorities promptly.

She reminded business owners that failure to report suspicions could have severe consequences.

“Ensure you have procedures for reporting suspicious activity and that your employees know them,” she added.

Failure to Keep Up with Regulatory Changes

KYC and AML regulations are continually evolving. Says Edegbe while recommending that “Small businesses must keep up with these changes to ensure compliance”.

“Failure to keep up with regulatory changes can lead to non-compliance and legal issues. Small Business Owners can stay current with regulatory changes and adjust compliance measures by subscribing to platforms and organisations that provide industry insights and information on compliance policies and changes,” she said.

In her submission, small businesses must implement adequate KYC and AML compliance measures to prevent money laundering and terrorist financing.

By avoiding these common mistakes and implementing best practices, Edegbe is confident that these businesses can develop effective KYC and AML programmes that protect themselves and their customers.

As the author of “Mastering KYC and AML Compliance: A Comprehensive Guide for Startups and Small Businesses”, Edegbe encourages business men and women to adhere to the basic guidelines.