With the release of the Economic Crime Plan 2, and other measures from the UK government aiming to respond to the evolving financial crime threat, banks and financial institutions must also carefully consider their approaches to compliance against this backdrop.
The global issue of financial crime has been increasingly in the spotlight, with it becoming apparent that, across the financial services industry, the predominately manual compliance processes followed by banks—particularly when it comes to know your customer (KYC) activities—are not keeping pace with expectations.
During the last few years, banks, with innovation and operational efficiency in focus, have invested significantly in their KYC processes.
However, with the potential cost of non-compliance and need to meet customer expectations remaining front of mind, now is the time to fully embrace the benefits that trusting in technology, such as dynamic KYC process automation, can bring.
Although institutions are beginning to embark on digital transformation journeys, many still rely on manual systems centred on human involvement.
In the case of the KYC lifecycle, for example, this not only means processes are cumbersome, but also error-prone, which affects productivity, customer experience and, overall, success.
Manual KYC also results in analysts spending too much time finding data, and even more time analysing it, to adhere to regulations and, crucially, assess risk.
Maintaining an accurate view of a customer and understanding risk exposure is essential to safeguarding against financial crime.
Organisations face an ongoing challenge when it comes to monitoring for changes and investigating alerts whist performing regular KYC reviews.
With it being most common for institutions to re-assess customer data at intervals of one year for high-risk customers, three years for medium risk, and five years for those considered low risk in a manual system, changes to a customer’s risk profile could long go undetected.
It is for this reason, among others, that implementing a perpetual KYC (pKYC) operating model, which minimises risk exposure, maintains ongoing compliance and increases overall efficiency, is now both possible and considered.
Achieving a state of pKYC
pKYC allows for automated ongoing monitoring of customers, representing a move from periodic customer reviews to a technology-centred and data-driven alternative.
It uses automation and increasing amounts of data to identify risk faster and more accurately.
Operational efficiency is also boosted as automation identifies cases where no material change has taken place.
This means human-led reviews can be focused on those where material change is detected.
For many across the industry, pKYC is considered as the ‘dream state,’ in that it provides an operating model that improves risk identification, lessens manual burden and increases efficiencies.
However, as with any major change programme, it requires a cross-functional effort, commitment and time to be successful, with several benefits to be realised along the way.
From the beginning of a journey towards pKYC, it is important to understand that data is central to an impactful transition.
Institutions must review customer data against external and internal data sources to assess risk and comply with regulations, with the maturity of an organisation’s use of data—particularly in regard to quality, ease of access, currency and the relevancy of external data sources—being key.
KYC operations, as we know, are a regulatory requirement and the transition to a new perpetual model requires acceptance and support from stakeholders.
Quality data is a factor that can improve operational efficiency and customer satisfaction, and thus accelerate the eventual adoption of pKYC.
The journey to pKYC is a marathon, not a sprint. It requires a long-term strategic vision and mapped-out framework of how to get there, with a focus on what will truly move the needle.
By leveraging automation, organisations can begin to realise the benefits throughout the various stages of their transformation journey towards the pKYC ‘dream state’.
Image: Encompass Corporation
Howard Wimpory is the KYC transformation director at Encompass Corporation.