How Social Media Can Enhance Customer Due Diligence

With technology and especially social media playing a large role in today’s society, there are many opinions on whether or not it is beneficial for young minds or a hindrance on face to face human interactions.  However, regardless of one’s opinion on the matter, due to society’s strong dependence on social media, it has become part of our everyday lives including in the financial world.  Rapid advancements in technology have allowed artificial intelligence (AI) and social media platforms such as LinkedIn, where professionals can network and find jobs, to contribute greatly to the regulatory compliance sector.

The world of social media may seem innocent at first, however, one’s use of social media can play a large role in customer due diligence (CDD) performed daily by financial institutions because it can be used to collect and compare a customer’s personal information with the information given to the financial institution, and can even be used to spot suspicious activity.  For example, if a customer is attempting to open a business in New York City but his Facebook and LinkedIn profiles show that he currently works from San Francisco for a multinational corporation, then the financial institution may be alerted and feel the need to question the customer further and reevaluate the information already given which could be false.  Another example that should make financial institutions suspicious would be a company that is looking to open an account based on their prospective earnings and expected brand-following in the upcoming year but does not actively use social media as a means to advertise or gain a following for their products, which is what most companies do in this day and age where the amount of Shares or Likes a company or its products gets could greatly influence its popularity and sales revenue.

Social media can also be used to create risk profiles on potential clients based on metrics from social networking sites that predict groups of individuals who are planning to or perhaps have already been involved in illicit activities which could damage the institution’s reputation and possibly threaten the financial security of its customers.  This practice can be used on existing customers as well, and is expected to help in anti-money laundering (AML) investigations which would cut down a company’s potential risks and help them avoid penalties.  Regulators from around the world have already started using social media for enhanced due diligence purposes, including the Financial Transactions and Reports Analysis Centre (FINTRAC) and the Canada Revenue Agency.  While FINTRAC is tracking down criminals and fraudsters online to prevent illicit crimes, such as the funding of terrorists, the Canada Revenue Agency has used social media posts to track down potential tax evasion suspects.

Although the use of social media by financial institutions for CDD purposes can be deemed an invasion of privacy, it is not illegal and has proven to be an effective way to collect information on potential customers or even employees in an effort to mitigate risk and prevent future crimes from happening.  While this method is still fairly new, it is expected to be picked up by many institutions and continually improved until it is seen as a normal practice.


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