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UBO Rules for AML: Conquer the Deadline

Posted by Jeff Pelliccio on Mar 12, 2018 9:00:00 AM

In ICS insights

The clock is ticking and quickly running out for you to meet the new UBO requirements to remain AML compliant in the U.S. In May of 2018 the new requirements will go into effect and if you aren’t ready, you may not like the consequences. In May of 2016, the United States Financial Crimes Enforcement Network published the new rule related to UBOs. They are currently set to go into effect on May 11th of 2018. The FinCEN rule now requires all financial institutions that are operating within the United States to not only process, but also vet individual associations, corporate associations, negative-news data, sanctions data, and Ultimate Beneficial Owners. These financial institutions must conduct full down traces, which trace the relationship from the customer to the UBO and all the corporate vehicles in the middle. The goal is to have a virtual avalanche of data created for each customer on an ongoing basis.

The Importance of Preparing Now

If financial institutions haven’t begun to prepare for these changes, which are occurring in the U.S., as well as other countries, it may prove to be disastrous in the future. It’s the IT departments at these financial institutions that are actually on the hot seat with this coming change because now the institutions are going to be accountable for the large amounts of data that have to be researched for countless businesses located all around the globe.

The Strategy Behind the New Requirements

Some are wondering how the “down traces” will be researched through millions of corporate records all around the world. The key is to leverage innovative tech solutions.

The information will be compiled by data-provider services, and then it will be sold as a data service to the financial institutions. However, the data has to then be processed and also analyzed within the actual institution, which requires the interaction of IT systems.

The financial institutions and the IT staffs who are preparing for this coming change now will be able to avoid the challenge of ensuring compliance by the time May arrives. However, for those who have selected to stick with traditional paper processing, they are likely going to find themselves buried in all the data starting in May and continuing indefinitely.

The Importance of an Integrated Work Stream for AML/CFT Compliance

It is necessary for these financial institutions, along with their IT staff to immediately design and commit to securing the tunnels to their actual data services.

There are two basic options to choose from:

  • The institution can maintain their existing security policies, which means there is no data tunnel to provide for data-service integration with the AML software, therefore blocking their Compliance staff from being able to comply with the new U.S. law.

  • The institution can be proactive and take steps now to design ways for the mission-critical servers to speak to the data providers directly without requiring any internet connectivity.

While this is going to be a difficult change, as the systems in place are the backbone of modern financial institutions and having to grant external access can present a serious risk, it is one that is necessary and actually being imposed by law.

As a result, it may be necessary to utilize something being referred to as the integrated work stream. These occur in the secure data tunnel and aren’t able to be manipulated by people, which helps to mitigate the cybersecurity risk that is being created.

When you implement the integrated work stream, there won’t be anyone who is able to see what is going on from the data providers to the actual users – it’s all composed in a single integrated stream that has been secured with the highest levels of security available. This offers real-time processing and a huge asset to issues related to Compliance since the AML/CFT work streams are able to immediately flag any suspicious behaviors or relationships that will require the attention of the institution’s compliance staff.

The Worry Related to Integrated Work Streams

There are some financial institutions that are going to likely remain wary of the new concept of integrated work streams; however, the prevalence and complexity related to global financial terror and crime financing are increasing significantly year after year. The new law is put in place to help reduce occurrences of this, which is why compliance is so critical.

Now is the time to learn as much as possible about the new requirement changes that are being made and how they are going to affect your financial institution. If you have failed to begin preparations as of yet, now is the time to act, as the implementation of these changes is coming. Being informed is the best way to ensure you are aware of what’s coming and how to ensure you are ready.

When you are ready to hire a team that can implement a system that works for you and not against you, contact ICS. The UBO rules deadline has lit a fire under companies that aren't meeting compliance currently. Those companies need to consider using tech and employing those who can give the organization a quick and seamless transition. 

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