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Why Are KYC And Auditing Important

Why KYC And Auditing Are Key To Risk Management In 2022

19 May 2022

In the fourth Receivables Finance Global Outlook Report Navigating 2022 And Beyond, EQ Riskfactor spoke with industry experts including Matthew Davies, Director, Invoice Finance and Asset-Based Lending at UK Finance, to determine key priorities for the receivables finance industry in 2022.

KYC (Know Your Customer) and auditing were two prominent themes identified for finance providers in ensuring successful risk management as economic challenges continue to grow.


Quality risk metrics and auditing tools are essential for lenders to assess risk, prevent fraud and grow portfolios. Only so much can be checked remotely, so as a result lenders now need to pursue a hybrid approach to risk assessment. This is done by  physically looking at how the business is performing, for example by assessing the quality of products and services and management’s ability to run the business through the economic cycle.

The key questions lenders need to consider for auditing in 2022 are:

  • Is the debt assignable?
  • Is the debt contractually complete?
  • Is the debt collectable?
  • Are the potential dilutions/erosions quantifiable?
  • Is the business auditable?

By ensuring high quality auditing processes lenders can analyse historical trends, set the benchmark ‘swim-lane’ conditions for the prospective client and drive the right risk metrics of choice for ‘in-life’ management of new and existing clients within their portfolios.


Lenders with a robust KYC tool will be able to implement routines for effective risk management oversight. Inadequate KYC standards also bring with them regulatory, legal, financial and reputational risks. Integrating KYC into risk policies helps to equip lenders with an efficient and shortened onboarding process, as well as improving the customer experience.

The key questions lenders need to be asking regarding KYC procedures are:

  • Are effective KYC controls in place that are fitted to the business model and processes?
  • Is the KYC function dynamic? Does it adapt and respond to the ever-changing nature of risk management?
  • In terms of overall risk management, is as much focus placed on ongoing monitoring of clients, Periodic KYC and Event Driven KYC reviews as on onboarding KYC?

Addressing the key risk areas across each facility identified during the KYC and due diligence processes embeds the correct ‘in-life’ monitoring criteria. Using technology to manage the monitoring process, via automatic covenants, watch lists and alarm triggers is essential to focus resource where it is needed. This ultimately also allows for an easier and more efficient onboarding process, as well as less-intrusive ongoing requirements, resulting in a better experience for the client business.

Read Navigating 2022 And Beyond

Volume 4 of the Receivables Finance Global Outlook is now out.

Find out how technology can speed up and optimise risk processes to help lenders realise their 2022 growth ambitions.


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