financial compliance

Understanding the Role of KYC in Australia's Superannuation Sector


Retiring from the regular 9 to 5 is something everyone looks forward to. That is, as long as you have a secure superannuation guaranteeing your financial freedom. After all, you want to be able to maintain your current lifestyle. Australia’s superannuation system is the most common route to retirement planning. It’s a simple system where the more you invest during your working years, the more you can enjoy post-retirement. That said, subscribing to a superannuation fund necessitates sharing personal data. With this comes the risk of fraud and hence, the need for stringent Know Your Customer (KYC) regulations.

KYC Regulations for the Australian Superannuation Industry

As with any industry related to finance, the Superannuation Industry in Australia is bound by strict rules. Superannuation funds must ensure that their customers are who they claim to be and the money being contributed to a fund is not being used to fund any kind of criminal or terror activity.

The AML/CTF Act gives Superannuation Funds the responsibility of verifying customer identities, assessing account risks and reporting transactions that seem suspicious. This begins with enforcing robust KYC measures. These reporting entities must verify each customer’s identity in terms of the individual customers and non-individual customers, i.e. companies, trusts, associations, etc. before providing any service.

Superannuation Funds must also follow established internal policies to comply with regulatory requirements such as Customer Due Diligence (CDD). At the very least, this involves collecting a customer’s name and postal address, information about their source of wealth and how they plan to use the account. This may then be verified by comparing it to data extracted from official documents such as passports, driving licenses, incorporation documents, etc.

CDD is required when onboarding new customers and before executing transactions above regulatory thresholds. Customers with a higher risk profile may be subjected to additional due diligence. Failure to comply with these regulations can have severe consequences for Superannuation Funds. This includes financial penalties and a loss of reputation.

Moreover, as personal data collectors, superannuation funds must adhere to the principles of the Privacy Act 1988. The importance of maintaining data privacy is now more important than ever before. The recent cyberattack on Australian government Superannuation provider, Super SA exposed the private details of over 14,000 members. That’s 14,000+ individuals put at risk of being impersonated by fraudsters who could access to their data.

Customer Expectations: The Other Side of The Coin

While Superannuation Funds must comply with KYC regulations, this cannot be at the expense of the customer’s experience. Customers expect their onboarding and transactions to flow smoothly and quickly. Having to wait a few days for documents to be verified or having to enter a series of OTPs to verify phone numbers or email addresses is likely to frustrate them. However, at the same time, they expect the Superannuation Funds to provide robust security and ensure data privacy.

The biggest challenge thus is to balance KYC compliance with customer expectations.

KYC Made Convenient

Given the importance of robust KYC compliance and the need to maintain a good customer experience while onboarding and making transactions, traditional KYC techniques are no longer sufficient. Manual verification is slow, resource-intensive and is associated with a high risk of human error. It may also be subject to unconscious biases.

The good news is that this process can now be automated. Automated KYC verification tools make the process quicker and remove the risk of typographic errors and bias. There are a number of customer identity verification solutions. These tools are capable of verifying a customer’s identity as well as the validity of their contact details. It is also more cost-effective. Not only are automated KYC tools inexpensive in terms of the ROI offered, but they also allow resources used for manual verification to be reallocated to more important tasks.

How do modern KYC tools work?

The identity verification process is fairly simple. Data entered during the customer onboarding process is compared to data sourced from reliable third-party databases. This may include driving license registries, postal records, etc. Data found to be incorrect or incomplete is instantly flagged so that the customer can make necessary changes. The almost-instantaneous results streamline the experience thus meeting the needs of Superannuation Funds and their customers.

There’s an additional benefit to leveraging these tools. In addition to verifying the data entered as correct, they are also capable of enriching data. For example, if a customer entered his postal address without a street name, the same could be appended with data from the reference database. It also helps with standardizing data formats.

For example, ‘Jackson Rd.’ may be edited and saved as ‘Jackson Road’ to keep duplicates from being created. This is especially useful for Superannuation Funds dealing with customers from different zones across Australia.

In addition to verifying data before it enters the database, verification tools can also be set up to validate data already existing in the database. This is a critical step to combat data decay. Data found to be incorrect during this validation may be flagged for additional due diligence. It can also update data to keep it current. For example, if the city changed a street name, corrections could be automated to all addresses with the old street name.

Balancing KYC Compliance with Good Customer Experiences

Balancing regulatory compliance with good customer experiences is critical for Superannuation Funds. There are plenty of automated KYC tools to choose from. However, they’re not all equal. Firstly, the KYC tool chosen must have access to reliable, multisource, third-party databases that maintain trusted, up-to-date records.

It must be able to verify customer identity details and screen them against global watchlists and lists of politically exposed persons. Secondly, it must be easy to use and integrate with all existing infrastructure. It should also be capable of providing real-time verification checks as well as automating the regular processing of an entire address list for batch cleansing. Once you’ve picked the right automated KYC tool, you’re set for success.

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