RegTech innovation can play a fundamental role in optimising SME Onboarding for the UK Market.

As an umbrella category, the word “SME” (small and medium enterprise) refers to any organisation with fewer than 250 employees.

According to data from the National Federation of Self Employed and Small Businesses, in the UK SMEs are around 99.9 per cent of the overall business population, accounting for three fifths of employment and half of the private sector overall turnover.

With such numbers, it is no surprise that the expression “SMEs are the backbone of the British economy” has become a bit of a cliché.

What makes the SME onboarding process different

Despite the variety of organisations that the term encompasses, there are certain characteristics that make providing financial services to SMEs extremely different from partnering or servicing large enterprises.

In particular, SMEs tend to present a fairly straight-forward company structure. For companies registered in the UK, that usually means a single or at most double layer of company ownership and mostly UK-based shareholders, owners and persons with significant control. For this reason, the risk associated with such clients is usually low and their directors and ultimate beneficial owners tend to qualify for simplified due diligence (SDD).

The Joint Money Laundering Steering Group (JMLSG) is the body tasked with producing guidance to assist financial services providers with their obligations in terms of UK AML/CTF legislation. Under the current JMLSG guidance, low-risk customers eligible for SDD can be verified by simply collecting their name, date of birth and residential address information and verifying the provided pieces of information against official sources (e.g. electoral register, court judgements, credit institutions). This method is called 2+ 2 as it requires to match 2 data points provided by the customer to 2 data points from a trustworthy source.

The UK regulatory set-up enables financial institutions and regulated organisations to automate the onboarding of UK-based SMEs to a high degree, generating significant savings and reducing compliance officers’ manual interventions to a minimum.

How Know Your Customer can help

More specifically, with Know Your Customer’s business rules engine and customisable workflows, organisations can deploy a solution that is able to onboard low-risk customers without the need for manual intervention, while allowing for suspicious cases to be easily escalated for further investigation.

In the case of UK-registered SMEs with UK-based Persons with Significant Control (PSC), the Know Your Customer system is able to automatically run checks against AML watch lists and e-KYC accepted sources. If the submitted information does not trigger any red flags, the case can be automatically closed and the customer can be accepted.

If the automated e-KYC checks do not return a match – for example in the case of foreign nationals whose UK address hasn’t been registered or processed yet – our system can give compliance officers the ability to upgrade the application to a full KYC investigation. In this case, compliance team members can easily require traditional proof of address and proof of identity documents through our secure outreach tools (including iOS/Android app and web upload portal), perform ID Verification checks on the provided documents (we support government-issued IDs and passports from 180+ countries around the world) and check the GPS coordinates of the customer as an extra layer of security.

Such an approach doesn’t just drastically improve the internal efficiency and user experience of single-layered UK-based SME clients but also allows organisations to onboard additional clients that do not qualify for standard 2+2 checks by guiding them through the traditional KYC process.

If you’d like to learn how Know Your Customer can help your organisation streamline SME onboarding, please contact us here.