Just a few years ago, businesses could have set up shop easily in Singapore. Income from illegal activities could then be redirected into legitimate assets or businesses, hiding its dirty roots.
But not anymore – businesses now need to undergo due diligence checks, such as declaring funding sources. There have been stricter regulations, which led to the increased importance of know-your-customer (KYC) processes for businesses.
Inevitably, with an increased pickup of fintech comes the need to monitor and keep new players accountable.
There’s no doubt about it, financial technology – aka fintech – is rapidly gaining acceptance. In particular, the ASEAN region has seen a sharp rise in fintech funding. Investment in Southeast Asia’s fintech market is expected to reach US$338 million in 2017, according to a white paper from United Overseas Bank (UOB) that cited data from analytics firm Tracxn.
KYC is a process that allows businesses to identify who their customers are. This is particularly important to financial companies, as it lets them put faces to client names, preventing illegal activities like money laundering, tax evasion, or terrorist financing.
As Samson Leo, co-founder of online payment platform Xfers puts it, “you want to make sure that they do not use your business for illegal purposes, putting at risk not just your business, but other people as well.”
KYC also helps assess and monitor customer risk, and Southeast Asian companies are legally required to comply with global Anti-Money Laundering (AML) and Terrorist Financing (CFT) Laws.
Why KYC is difficult for small startups
However, determining the regulatory obligations of any business can be a mammoth task. That’s because no entire company can be cleanly pigeonholed into a single regulated activity.
This is an edited excerpt published on Tech In Asia. You can read the full article here.