Below are the 5 biggest mistakes funds make about the use of public data in KYC collection.

I often discuss the role and significance of public data related to KYC collection with customers, and I continue to encounter misunderstandings and mistakes that people make related to this.

It is tempting to think that when collecting KYC from counterparties, such as investors or investment targets/assets, you can completely avoid outreach/self-declaration from the counterparty. This makes the process faster, and you even get the data from what many believe is an “independent source”.

However, over the years, I have learned that there are rarely any easy solutions to financial crime prevention, specifically KYC. A former colleague once told me, "AML is like cleaning under the kitchen sink. It's dark and difficult to get to, and therefore no one wants to do it”. I could not agree more.

1️⃣ Public data is comprehensive, and I don't need to perform outreach. No, public data is not comprehensive, as the quality differs vastly from country to country. In some countries, you can find fairly high-quality data, including ownership data, but the data has significant flaws and gaps in many jurisdictions.

2️⃣ Public data is always updated. Far from it. In most countries, public data is being updated by the company itself. This means that if the company forgets to update or if there is a delay in the update, the data will be incorrect for a period of time.

3️⃣ Public data is an independent source. Absolutely not. Public data is based on a circular reference, as the data comes from the company itself (or in some cases the company external lawyer).

4️⃣ The primary source is the public database. No, the company is the primary source. If a company issues new shares or changes a board member, these data points are “created” at the company and then sent to the public databases for updating. Therefore, the company holds the source, and it makes little sense to use public data to verify whatever a company replies to a questionnaire.

5️⃣ I can find the complete ownership and control structure from public data. Very rarely. In some countries, the ownership structure is simply not available. In others it's available down to 5%, but only in intervals. The real problem comes as soon as the ownership is by an entity from another country. Then you need to find that entity in another database and continue the hunt for the ultimate owner.

So is public data valuable at all?

Absolutely. It's one data point that can help in partly verifying the replies received from the counterparty. It's also an obvious mitigant to fraud and legal entity identity theft.

And of course, by utilizing prefilling of data from public databases into questionnaires, you make things a whole lot easier for your counterparty, as they the only need to confirm the data.

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