Global investigations and crisis management firm Wolf Global has clients that span multinational corporates, international banks and financial firms, governments, embassies and consulates, private clients, and law firms.

After SmartSearch’s latest research found that only one-quarter (24%) of UK challenger banks say they always verify new customers, B&C asked Jarrett whether these institutions are fulfilling CDD — which they are required to do by law — correctly. 

“If [the research] is true, and I have no reason to doubt it, UK challenger banks are, unfortunately, not meeting their CDD obligations,” Jarrett commented.

The SmartSearch report also highlighted a concerning lack of commitment when it comes to screening new customers against sanctions or PEPs.

Seeing this lack of action, Jarrett was keen to suggest training that should be put in place to improve CDD. 

“If we can help banks understand what a PEP is, how to identify a PEP, and how to perform the necessary enhanced due diligence, then things will be better for the bank, better for the PEP, and better for all of us.  

“For UK challenger banks, conducting training, developing, implementing and then operating a compliance program might seem daunting — but it’s doable.

Jarrett has been working on PEP issues since 2007: “We had this same conversation years ago with SMEs in Asia that wanted training on sanctions compliance and needed to develop and implement [these] programmes, but were concerned about what it might cost.

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“I have been on a call with bankers who honestly believed it was against the law to bank a PEP.

“I have encountered banking compliance databases that had designated individuals as PEPs either unnecessarily or incorrectly.

“Remarkably, most of the issues associated with PEPs continue to arise from a misunderstanding.  

“Once you understand what a PEP is and what it is not, and why we are concerned, mitigating and managing the risk becomes a lot easier.

As a potential method of improving CDD in UK challenger banks, Jarrett pointed to AI. 

“I expect to see increased use of AI in customer due diligence,” he said.

“I think AI will be helpful as a tool, but banks will need to remember that AI is only a tool.  

“AI should not be used as a replacement for a responsible anti-money laundering compliance program.

“Regulators, and for that matter investigators and prosecutors, are probably not going to want to hear, ‘the machine did it’, or ‘the machine said it was okay’.

“What regulators, investigators, and prosecutors might be willing to hear, however, is how the financial institution is using AI as a part of its compliance program.

Jarrett added that AI might help identify PEPs, however the complex and high-risk investigations that are often required will have to be done by professionals.

“AI might be helpful when it comes to identifying PEPs, but the decision to bank a particular PEP will still require approval from senior management, and the investigation that will go into making that decision will have to be conducted by professionals within the bank’s compliance department or by firms like Wolf Global or our peers in this space.”