What are the 3 biggest challenges with KYC and investment projects, and how do you overcome them?

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Also known as: What can funds learn from law firms when it comes to KYC?

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If you work in a KYC team in a fund, you probably know the problem with projects. You have an investment (the project) and you are deploying equity into it from one of your funds, so the investors are not the problem as they are already KYC’ed.

However, the project also involves some co-investors, some debt-holders, a law firm or two and the investment target. Maybe it's an infrastructure project, and you have the seller of the land, the contractors building the asset, and their subcontractors.

Suddenly, you find yourself starting to perform some sort of due diligence on all these different kinds of counterparties. Some of them you can reach out to and ask for KYC. Others, you can't.

All of them you want to have sanctions screened.

You would also like to have some sort of risk score for the project, and now you find yourself in an Excel sheet, trying to tie it all together into something that makes sense and can help you make a decision.

The above implies these challenges:

1️⃣ You have to deploy different standards across the various counterparties, from no KYC to full KYC. This is hard to keep track of across the various emails and templates you send out, and it takes time.

2️⃣ You need to screen all of them, meaning you have to combine counterparties from your KYC platform with counterparties from an Excel sheet, and then inject them manually into your screening engine. This is frustrating.

3️⃣ You don't have a holistic risk overview of the project, and you don't have a systematic way to create a risk score for the entire project based on the underlying risk scores for the various counterparties. This impacts your overview and decision-making.

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What's the solution?

You need to find a KYC platform that has Cases capability. (Yes, I admit, Avallone can do this).

You create a case.

A case can consist of several investors, several co-investors, banks, law firms, contractors, investment targets, sellers of assets, etc. You get it.

Thereby, the case becomes the "project," where you must ensure that each party, including their related parties (UBOs, directors, etc.), has proper KYC and screening status.

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Some parties you need full KYC on; others you can't get KYC on, but you will need to make sure their sanctions status is OK.

The case is where you control each of the counterparties and the KYC you have collected, and all the related parties this leads to.

It’s also where you keep track of the screening status and where you risk-score each of the counterparties.

Once all have been risk-scored, you give the case an overall risk score, either based on a simple manual scoring model or an automatic model.

This will reduce your frustration level significantly, save you time, and reduce your risk.

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