Estonia’s KYC Process: Modernizing Customer Due Diligence with Digital Solutions
Know Your Customer (KYC) is a crucial process for Estonian businesses to prevent money laundering, terrorist financing, and other illicit activities. Obliged entities, including banks, financial institutions, notaries, lawyers, auditors, and others, must perform this process to verify the identity and assess the suitability of customers and business partners.
Making Sense of the KYC Process
The KYC procedure involves legal entities scrutinizing various aspects of their customers’ identities for due diligence:
- Investigating the person and beneficial owners
- Examining purposes and nature of business relationships
- Assessing potential risk factors, such as politically exposed persons (PEPs), transactions, and international sanctions
By adhering to anti-money laundering (AML) and counter-terrorist financing (CFT) laws, entities aim to minimize cooperation with high-risk entities and countries.
A Shared Goal in Estonia
An estimated 10,000 companies in Estonia must perform KYC procedures regularly. While necessary, the current approach lacks standardization, leading to duplicated efforts, paperwork, and limited access to needed data.
Engaging with the KYC Process
Individuals and businesses frequently interact with the KYC process:
- Opening bank accounts
- Making notarial transactions
- Purchasing goods via lease
- Making money transfers online
- Obtaining insurance
- Selling or purchasing real estate
To execute the KYC process, entities typically require individuals to complete questionnaires and submit specific documents. However, much of the required data already exists in various national registers and databases.
Streamlining KYC with Digital Solutions
To address these challenges, Estonia’s eesti.ee information portal now offers a KYC data exchange service. This cutting-edge solution collects essential data in real-time from various national databases, creating a KYC profile for the person making the request. By granting permission, the individual can then share this information with the entity carrying out the KYC procedure.
This consent-based approach ensures individuals can monitor who has accessed their data and withdraw consent at any time.
Leveraging Estonia’s KYC Innovation
Implementing this KYC data exchange service streamlines data-related processes and opens up possibilities for digitization across various sectors. This change benefits not only the financial sector but also encourages the automation and optimization of manual processes.
Addressing a critical AML/CFT challenge paves the way for exporting Estonian expertise to neighboring countries, the Nordic region, and Europe. By sharing already-developed best practices, Estonian businesses can expand their services and technological solutions in numerous sectors, ultimately creating a more data-driven business environment.