How can telcos ensure regulatory compliance across multiple AML and KYC jurisdictions?

Besides the technical challenges they face protecting their customers from digital risks, telcos also have a big job on their hands when it comes to maintaining regulatory compliance.l 

AML (Anti-Money Laundering) and KYC/KYB (Know Your Customer/Know Your Business) regulations are having a significant impact on telcos across various jurisdictions. That’s because telcos play a crucial role in facilitating communication and financial transactions, making them subject to these regulations. 

Navigating the complexities of these regulations is crucial for telcos to maintain regulatory compliance and prevent the misuse of their services, such as money laundering, terrorist financing, and other illicit activities. Misuse of telecom services by customers can also expose other users to risks including identity fraud, financial fraud and account takeover. Phishing, smishing, SIM exchange fraud, and International Revenue Sharing Fraud are all examples of widespread techniques, with almost $40 billion in reported losses just for US companies in 2021.

Multinational and cross-border operations

In many countries, telcos are required to implement robust procedures to verify the identities of their customers and monitor their transactions. For instance, in the US, the Bank Secrecy Act (BSA) and the USA PATRIOT Act require telecommunications companies to implement AML and KYC programs. In the UK, the Money Laundering, Terrorist Financing and Transfer of Funds Regulations require telecommunications companies to carry out KYC checks on their customers. 

Telcos also need to establish mechanisms for ongoing monitoring of customer transactions. They are sometimes obligated to report suspicious activities to the appropriate regulatory authorities. For instance, telcos in the European Union must adhere to the 5th Money Laundering Directive (5AMLD), which mandates enhanced due diligence, ongoing transaction monitoring, and reporting of suspicious activities.

There may be specific challenges in jurisdictions with stricter regulations. For example, some countries may require telcos to obtain licenses or permits before providing certain services, such as mobile banking or money transfers. Failure to comply with these requirements can result in heavy penalties or even the revocation of operating licenses. In India, telcos offering mobile banking services need to obtain licenses from the Reserve Bank of India (RBI) and follow stringent guidelines. The RBI has also issued guidelines on KYC for telecom companies which require them to verify the identity of their customers using documents such as Aadhaar cards, passports, and driving licenses.

Moreover, cross-border operations can pose unique challenges for telcos. International regulations, such as the inter-governmental Financial Action Task Force (FATF) Recommendations, suggest telcos have effective measures in place to verify the identities of customers and counterparties involved in cross-border transactions. 

The impact of evolving regulation

Compounding the compliance pressures on telcos, regulations related to KYC and data privacy are continually evolving. For example, evolving data privacy regulations, such as the European Union's General Data Protection Regulation (GDPR), empower consumers with greater control over their personal data. Telcos must comply with these regulations, allowing consumers to exercise their rights, such as the right to access, rectify, and delete their personal information. 

Compliance may require additional investments in infrastructure, systems, and personnel. This can impact operational costs and resource allocation for telcos. However, maintaining compliance is crucial to protect their reputation, avoid penalties, and retain customer trust.

Benefits of digital processes

If this all sounds like a big stick hanging over telcos’ heads, there are upsides to regulation too. 

Digital compliance tools and processes provide greater convenience in several ways. Telcos can implement digital onboarding processes that allow customers to sign up for their services remotely. By using electronic identity verification methods, such as biometrics or digital identity solutions, telcos can authenticate customer identities quickly and securely without the need for physical paperwork or in-person visits. 

They can integrate their KYC systems with external data sources, such as government databases or credit bureaus, to validate customer information automatically. This integration allows for real-time verification of customer data, eliminating the need for customers to provide extensive documentation or proof of identity. 

Telcos can empower customers by providing self-service options for KYC-related tasks. Through secure online portals or mobile applications, customers can update their personal information, upload required documents, or manage their KYC profiles, reducing the need for manual intervention and providing convenience.

Proactive notifications and reminders to customers regarding upcoming KYC renewals or any required updates to their information ensure that customers are well-informed and have sufficient time to provide the necessary updates or documentation. By proactively engaging customers, telcos can improve compliance rates while minimizing inconvenience for customers.

Benefits that go beyond the KYC process

Finally, digital approaches also open up opportunities to benefit customers beyond the KYC process itself. 

Seamless service activation: Once the KYC process is completed, customers can start using services immediately, without any additional steps or delays. 

Personalized service recommendations: With the customer's KYC data, telcos can analyze customer preferences, usage patterns, and demographics to offer personalized service recommendations. These can include suitable service plans, add-on features, or content options based on the customer's individual needs and interests.

Automatic plan optimization: By analyzing usage patterns, telcos can also identify opportunities to recommend more cost-effective plans or adjust existing plans to better match the customer's needs. 

Personalized customer support: Customer support representatives can have access to customer details, service history, and preferences, allowing them to offer tailored assistance. This can include resolving issues more efficiently, providing relevant information, or suggesting solutions specific to the customer's situation.

Simplified account management: Telcos can integrate KYC data into customer account management portals or mobile applications, allowing customers to easily manage their accounts. This can include features such as updating personal information, changing service plans, adding or removing features, or tracking usage. 

Personalized loyalty rewards: By understanding customer preferences, telcos can offer tailored rewards, discounts, or exclusive offers to customers based on their usage patterns, tenure, or engagement.