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Background checks: Not just background noise

Transport for London’s recent decision to refuse to renew Uber’s licence to operate in the capital has highlighted the importance of background checks. Oliver Rodwell, Head of Compliance Development at Dolfin, considers the issue from the perspective of the financial services industry

10 January 2018 / Regulation

For Londoners, Uber dominated the news last month, following Transport for London’s announcement that it would not be granting a renewal of the ride-hailing app’s licence. In a statement, TfL explained that “Uber’s approach and conduct demonstrate a lack of corporate responsibility in relation to a number of issues which have potential public safety and security implications”. Three of the four issues it highlighted related to the background checks Uber carries out on its drivers: its approach to reporting serious criminal offences; its approach to how medical certificates are obtained; and its approach to how enhanced disclosure and barring service checks are carried out.

Within the financial services industry there is also a need to carry out appropriate checks in order to minimise the risk of crime. Whilst Uber must verify their drivers’ identities and backgrounds, the Financial Conduct Authority tasks financial services firms to ‘know your customer,’ using a combination of identity verification techniques and understanding the circumstances of the customer to minimise the risk of that customer having past or present involvement in money laundering or terrorist financing. Whilst there are guidelines for us to follow, the lack of perspective rules for every scenario can lead to the same difficulties Uber faces; knowing just how to deal with the verification process.

Getting to know you

The Money Laundering Regulations, which were updated this year, are the rules which the financial services industry must follow in this area. However, to accommodate the massive variety across the financial services space (the rules, in combination with industry guidance) must be implemented on a proportionate basis and using an approach that suits the needs of the business. At that point it becomes up to the business to decide how it interprets the rules.

Because there are no absolute rules, some firms are unclear about how, what and how much they should be doing. Some use third-party providers or try to outsource, but even then, ultimate liability lies with the firm. They are responsible for setting their own approach and they will be held accountable if it’s considered not good enough – and there is a long history in the financial services industry of large companies failing to do their checks appropriately, with banks having been fined hundreds of millions of pounds for non-compliance with anti-money laundering regulations.

A shift towards automating background checks has been taking place in our industry over several years, as technological developments make a personal, face to face interaction less and less common. The ‘online verification’ method, is very similar to the process which Uber and many mobile technology businesses use: an online system based on filling in forms, answering questions and supplying data, which is checked by a machine. There is limited human intervention, so the emphasis changes from a traditional face to face interaction, to making sure that the technology is asking the right questions for you.

Striking the balance

A lot of companies try to create processes that are quick and easy, but they might be missing out some vital information and failing to meet the regulatory requirements. Others create lengthy processes that carry a huge burden and ultimately can deter business. As of yet, there are very few processes that hit the fine line between being lightweight, user friendly and being robust enough to fulfill regulatory requirements.

Dolfin’s main priority is to avoid the possibility of financial crime, and that’s why we try to identify the individual and make sure that their money has been obtained from legitimate sources, and that they are not intending to use it for criminal purposes, such as funding terrorism.

Our verification process is based on our knowledge of customers, and answering concise intelligent questions to determine the risk of financial crime. We can then combine that with a verification check which has been designed to reflect the risk of that client, without adding steps unnecessary for that customer’s profile. This can remove a huge amount of manual work in favor of an automated process with the same accuracy, reducing the time it takes out clients to start working with us whilst still providing robust measures to reduce financial crime.

Uber have shown the dangers of missing the mark in terms of verification checks, and how misunderstanding the needs of the market and the regulator can be at the detriment of both the business and potentially its clients. We know we have a great knowledge of the market, our customer base, a real understanding of the purpose of the checks we are doing. We believe our system will strike the balance between strong, resistant systems and controls, and a user friendly experience.

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About us

Founded as a London-based wealth boutique in 2013, today we’re a diversified financial services firm with an international presence and our own bespoke technology platform.

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