The worldwide regulatory environment commonly referred to as AML (Anti Money Laundering) and KYC (Know your customers) are complex and dynamic regulations. But, they both are becoming an important focus area for all the organizations globally these days owing to the significant cost and risk of non-compliance.
The risk of non-compliance is very real nowadays. Money laundering at international level, investing money in tax havens, Ponzi schemes and sanction violations are creating new grounds for risk exposure. Hence, the companies are increasingly investing more time and effort in KYC.
Reasons why KYC has become critical and inevitable for companies:
Financial penalty:
Any non-compliance with the KYC regulations can attract heavy monetary penalties on the company.
Imprisonment:
As it was mentioned earlier that non-compliance of the regulations go far beyond monetary penalties and in some cases, the CEOs and Directors of the businesses face serious implications. Also, it is noted that the offences that got prison term were smaller in magnitude in comparison to the organizations that faced larger fines but no prison term.
Damage to a company’s reputation:
If there is any proven non-compliance against the business by the regulatory authority it can cause serious damage to the company’s reputation. Even an investigation by the regulatory authority can cause irreparable harm to the brand image.
This may make the stock prices fall drastically and no investor, customer or supplier would like to continue the relationship with the company. This is even a bigger loss than just monetary penalties.
Share holder’s might lose confidence in the business:
The distorted brand image and penalties due to non-compliance of rules and regulations will make the shareholders lose faith in the management of the company. Also, reduce the shareholder’s confidence in the company and it will again many years to build the same level of trust with the shareholders for the management.
Business disruptions:
The business will surely be affected since lot of time and efforts will be spent on identifying the loopholes. Then, a due diligence plan to be formulated to put a system in place ensuring complete compliance. This leads to loss of precious business time as well as disruptions in the workflow.
The bottom line:
In today’s business world around the globe, the companies or organizations need to operate in a highly-regulated environment wherein stricter rules and governing bodies are in place. Also, it is just not the money that is at stake at the times of non-compliance but the losses are much bigger that can leave a lifelong scar on company’s reputation and trustworthiness. Hence, it essential to ensure that the companies comply will all the regulations in all the countries in which your business does the business.
