As the world progresses toward global digitization, startups rush to push their innovations and services into the market. In this digital revolution, investors play a vital role. The capital and expertise they bring enable startups to pick up momentum, solidifying their position in the market. Unfortunately, choosing an investor can be a gamble. Some of the best investors propel the company forward, whereas shady ones can interfere with the startup’s plans. Even professional investment managers can fall victim to aggressive investors, which is why a know-your-investor service is the need of the hour. This post details a roadmap of best practices that investment managers can follow to create an investor verification solution.
Define a Clear KYI Policy
The first step in developing and implementing an investor verification service is s clear KYI policy. This process should not be taken lightly, as the entire burden of legal issues and regulatory compliance will be on this policy. As a thumb rule, the policy-making step should start with the identification of key stakeholders. Precisely, it should document all individuals and entities who should be subjected to the KYI policy. Similarly, it should note the required documentation from investors and the frequency of investor accreditation verification. The entire organization should be on the same page regarding the policy after completing the development and documentation process.
Conduct Thorough Due Diligence
Even though defining a clear KYI policy is integral, its implementation represents the actual work. Therefore, investment managers should enforce and conduct thorough due diligence on their investors. Unlike regular Know Your Customer processes, qualified investor verification poses significant risks. Therefore, due diligence must include a proper screening of identification documents. Typically, investment managers have to dig through multitudes of documents and contact multiple authorities for this purpose. However, an advanced investor verification service can help overcome these issues by providing automated enhanced due diligence.
Verify the Source of Funds
Investment managers should pay extra attention to verifying the investor’s source of funds. In the US alone, investment firms manage around $37 billion, making it a high-value yet risk-prone industry. Criminals can try to penetrate investment funds to hide their ill-gained money. Moreover, politically exposed persons can use this gateway to launder their black money. Therefore, it becomes necessary to verify each potential investor using a robust investor verification service.
Implement a Risk-Based Approach
Investment managers should implement a risk-based approach to KYI. This process involves categorizing investors based on risk profiles and conducting due diligence accordingly. For this purpose, an investor verification service performs an advanced analysis involving association checks, financial history, and in this context, investment history as well. High-risk investors should undergo more rigorous verification processes. On the other hand, a whitelisted verified investor is also subjected to ongoing checks to ensure future security.
Stay up-to-date with Regulations
One of the best practices for investment managers is to stay up-to-date with changing regulations. Moreover, they should ensure that KYI practices comply with local and international laws. FATF and other international organizations maintain and update KYC/AML policies to track global criminal activities. Keeping investors informed about any changes in the KYI policy is also an integral part of a know-your-investment solution. Even a minor oversight in compliance can result in legal and monetary problems for the managers. Therefore, an investor verification service is essential to safeguard against such issues.
Train Staff on KYI Practices
Investment managers should train their staff on KYI practices to ensure they are familiar with the policy and procedures. They should also provide ongoing training to keep staff up-to-date with changing regulations and best practices. However, manual KYI can consume a large amount of resources over a time period, not to mention the wasted time in such processes. On the other hand, an investor verification service can provide a seamless solution to manual problems.
Use an Automated Investor Verification Service
As discussed in the previous section, manual KYI can be tedious and costly. On the contrary, an automated investor verification service can streamline the process and reduce the risk of errors and fraud. These solutions use the innovative power of AI to stay ahead of criminal activities. Moreover, the neural networks help establish better accuracy and efficiency in the verification process.
Summing it Up
Above all, a good investor can help a fledgling company stand out in the fierce competition of startups. For investment managers, it translates to good business and better compliance with regulations. Therefore, by implementing a know-your-investor service, investment managers can ensure that their KYI service effectively identifies potential risks and prevents fraud.