Estonia to pilot new AML prototype to benefit 10,000 companies struggling with AML compliance

Published on 2023-02-03

The new prototype of the Know Your Customer (KYC) and Anti Money Laundering (AML) tool, also known as the KYC service, will be presented to the public on February 8 at the Tallinn Supply Chain Finance Summit, a trade finance conference focusing on the triumph of supply chain finance (SCF) and helping explain how trade partners, banks and fintech companies can benefit from SCF.

It is not only banks that have to deal with preventing money laundering: notaries, auditors, accountants, real estate agencies, and many other companies are also obliged to collect customer data.

“It is estimated that there are 10,000 companies in Estonia qualifying as obligated entities by law and are therefore compelled to conduct AML procedures,” says Sandra Särav, the Undersecretary for Business and Consumer Environment at Estonia’s Ministry of Economy and Communications.

How can the state help thousands of companies relieve their compliance burden?

“In calculations made a few years ago, we found that Estonian entrepreneurs spend nearly €40 million p.a. on Know Your Customer (KYC) protocols. A large part of this cost goes on human labour, i.e. dealing with data collection, entry and then analysis,” said Särav.

So, this process is currently time-consuming and labour-intensive for entrepreneurs, and the reason why many companies do not comply with the requirements.

According to Särav, companies and the state have an understanding that the KYC service could be of help, i.e. assisting obligated persons to carry out KYC procedures more quickly, efficiently and effectively, thereby raising Estonia’s reputation in the field of preventing money laundering.

“Unfortunately, until now, some entrepreneurs have felt that the state has offered insufficient help in fulfilling AML obligations,” said Särav.

“Last year, in cooperation with the Estonian Chamber of Commerce and Industry, we conducted a survey amongst chamber members. A clearly visible problem was that of entrepreneurs’ incomplete knowledge of where and how to collect data, or what data to collect, for KYC procedures. An exemplary e-state has room for development.” stated Särav.

Local start-up pivots to state service

To improve the situation, the state decided to support developing the KYC service as a startup in the Accelerate Estonia programme.

While it started out as a start-up, the project’s leader, Rainer Osanik, decided to pivot in favour of the public sector, which is a more fitting environment for a tool that works with information in state databases and which needs to make it available in a highly reliable manner. This is probably one of the few cases in the history of start-up business where a startup becomes a service offered by the state.

Until now, the big problem has been that KYC involves collecting a lot of data about the customer, which is hugely time-consuming; the data needs to be checked against domestic and international databases, while the obligated parties are not allowed to share already collected data with each other. The main goal of the finished service is to automate and structure all this necessary information.

Much of the relevant data is already available

“A large part of the relevant data exists in national registers and databases, but they are not easily accessible and machine-readable,” says Särav.

The story with non-residents is more complicated, because it is often not possible to get their data in any other form than only on paper. If national databases communicated better, it would be possible to carry out quicker checks.

Currently, performing a KYC check for non-residents can take at least two weeks, which is clearly too long in the 21st century information society.

Prototype’s first public demo scheduled for February 8

One of the KYC service’s goals, therefore, is to demonstrate clear improvement in these areas and the first public demonstration of how this will be achieved will take place at the Tallinn SCF Summit on February 8.

It is important to make as much information as possible machine-readable, as this would also help the anticipated KYC service to retrieve information more quickly in the future and make the entire KYC process more affordable for companies.

In this way, the administrative burden of companies and problems with money laundering would be reduced.

The approach to the development of the KYC service is a clear example of a pioneering e-state: the purpose of the service is to solve a demonstrated problem and it’s developed in an agile manner. More specifically, the service is presented to the financial community in the prototype stage, providing feedback early on.

“If for the last 20 years Estonia has focused on the development of the e-state for citizens, then for the next 20 years the focus will be on e-services intended for companies,” emphasised SupplierPlus COO, Uve Poom.

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