As the world evolves, the need for efficient Know Your Customer (KYC) processes grows, with more and more industries needing to meet Anti-Money Laundering (AML) requirements. Today, we look at one of these industries and explore the benefits of KYC for law firms.
Legal AML Requirements for Law Firms
The main reason law firms need to implement KYC is simple: they, like every other business that deals with the transferring of money, must adhere to Anti-Money Laundering (AML) regulations.
In the US
As a result of the Pandora Papers scandal, where nearly 12 million documents were leaked, incriminating hundreds of politicians and wealthy elite for financial crime, the Enablers Act was drafted in 2022. The Enablers Act suggested new regulations for many industries, among which you could find law firms. Although the act did not end up passing in the US, the regulations proposed there are already in effect in many parts of the world, and it is believed that a revised version of the act could still pass in the future.
The Money Laundering regulations for law firms were established in 2017. These regulations require firms to conduct KYC checks on all clients and maintain updated records, including ongoing monitoring of business relationships.
In New Zealand
Any service that can act as a formation agent of legal persons or legal arrangements as well as manage client funds is required to perform AML procedures, including KYC checks.
Although the specific requirements differ from country to country, the general consensus is simple: KYC processes only benefit law firms.
Does Your Law Firm Need KYC?
The simple answer is yes. Regardless of whether or not KYC checks are legally required for your business, they are still recommended for any industry, especially law firms, where knowing your customer brings several benefits.
It’s worth noting that failure to comply can result in hefty fines. In 2022, a small law firm in the UK was charged a record sum of £20,000 for not following AML regulations. While in 2023, just in the UK, 49 firms in the legal sector have been fined already. These fines can bring about serious disruptions to the overall business of legal professionals.
Understanding a client’s background is imperative to risk management associated with fraudulent activities or overall suspicious behaviour. KYC procedures allow law firms to identify high-risk clients and provide the opportunity to refuse or terminate their services if necessary. On top of this, our solution provides sanctions, PEP and reputational risk media screening. Ensuring you know everything about your potential clients when you make the decision to partner with them.
Financial Crime Prevention
KYC processes provide a robust framework for assessing the financial health of clients, mitigating the risk of non-payment or financial disputes. By proactively identifying potential red flags, law firms can make informed decisions and safeguard their financial stability, as well as minimise the risk of money laundering.
Validating client identities swiftly and reliably not only builds confidence in the attorney-client relationship but also safeguards against potential fraud and identity theft, assuring clients that their sensitive client data is handled with the utmost care. Any knowledge of law firms allowing criminals to get away with money laundering or terrorist financing could ruin the reputation of the entire practice.
How can Ondato’s Automated KYC Process Help?
When looking at KYC processes, it’s important to remember the need for automated systems. Implementing AI and machine learning into onboarding can greatly increase efficiency. That’s where Ondato’s automated KYC process comes in and brings several benefits:
One of the most notable benefits of digital identity verification is the elimination of unnecessary expenses. Human resources are generally less cost-efficient compared to automated customer onboarding processes. By entrusting the onboarding process to an automated system, the costs associated with hiring and training a KYC specialist team for on-site client onboarding can be halved.
Ondato’s KYC process brings convenience to your business. We provide an easy-to-understand, no-integration-needed process. Our pricing is dependent on your volumes and creates an easy environment for both smaller and bigger firms.
Eliminating Human Error
It’s no secret people make mistakes. Factors such as long working hours, stress, and fatigue contribute to human error in manual customer onboarding. Fortunately, AI comes to the rescue. Automated processes significantly reduce the likelihood of mistakes by eliminating the impact of these human factors.
Efficient Onboarding Flow
Manual onboarding often involves a time-consuming back-and-forth across multiple touchpoints, including filling out numerous forms, printing documents, and manually verifying identities. This process consumes a significant amount of time and effort. While manually processing a single corporate client may take months, automated processing can streamline this timeline to a few days or less, providing a seamless onboarding experience.
Organising and Storing Data
The simplicity lies in digital data storage—it doesn’t occupy physical space on your desk, shelves, or storage rooms. When onboarding relies on physical documents, the risk of documents getting lost or destroyed increases, and finding necessary information becomes a time-consuming task. Investing in an automated system allows you to easily access all relevant data in one place, ensuring efficiency and organisation.