Technology Opportunities for KYC Compliance Automation
Financial institutions and similarly regulated businesses are overly reliant on manual processes to satisfy regulatory requirements. As innovation reaches into know your customer (KYC) operations, Fenergo’s survey data* shows that investment in headcount is beginning to plateau, while investment in technology ramps up.
Fenergo conducted a global survey, KYC Trends in 2022, of over 1,000 C-suite executives across 100 corporate and institutional banks, to uncover the direct and opportunity costs of people-driven, manual and laborious KYC processes.
KYC Budget Priorities (Figure 10)
The business case for technology is clear. KYC process comprises a set of discrete tasks: asking identity-related questions, collecting data and documents, validating information, unwrapping ownership structures, performing anti-money laundering (AML) checks and much more.
Just 2% of businesses have reached a point where less than 10% of their KYC review tasks are completed manually. The rest have a long way to go, with 28% of firms still completing 41-60% of tasks manually.
This pivot towards automation to improve the accuracy and quality of KYC reviews reflects concerns about the sustainability and operational efficiency of adding human resources to carry out manual tasks in a high-volume and process-driven environment. For compliance goals to be achieved, a greater degree of automation, integration, and standardization is needed.
The ideal solution is a unifying Client Lifecycle Management (CLM) platform that brings together all the elements of the KYC journey while providing actionable client insights by connecting to an ecosystem of internal systems, data providers, vendor solutions and customer channels.
Challenges in the KYC Compliance Process
KYC backlogs are a direct consequence of an inefficient process. It is not surprising that 35% of respondents cite backlogs as the number one compliance challenge they face currently.
In dealing with backlogs, firms are competing for resources. 30% say their biggest compliance challenge is the war on talent and their inability to hire staff with the necessary skills. If the day-in-the-life employee experience for a KYC analyst involves an endless to-do list of tasks that are better served by automation, the hiring challenge will extend well into the future.
Geopolitical turmoil such as the crisis in Ukraine and the subsequent changing sanctions environment reinforces the importance of effective KYC and AML systems, processes and controls. Automation is key for the management of review tasks that must be performed as sanctions measures and other regulations evolve. 33% of respondents say the changing sanctions and regulatory environment is the biggest compliance challenge they currently face.
Challenges Facing Compliance Function (Figure 11)
Sharing a Single View of KYC Review Data
For large banks, their corporate and institutional clients have complex ownership arrangements, diverse business lines and numerous subsidiaries. Sharing a client KYC view across the bank enhances data accuracy and removes duplicated effort.
Among the banks in our survey 61% do not have the ability to fully share client profile data for KYC reviews. Profile sharing speeds up time to revenue - a new client subsidiary can be onboarded re-using information already held about its parent group.
For ongoing and periodic reviews, a single client view is vital for delivering an optimum client experience. It eliminates the need to request the same information at every review cycle, regardless of business line or jurisdiction.
Ability to Share Client Profile Data for KYC Reviews (Figure 12)
Case Study: KYC Automation in Action with BNP Paribas
When it comes to investment in technology and automation for KYC, some financial institutions are leading the way. This is the case of BNP Paribas, which built a global utility for KYC to streamline onboarding, improve operational efficiency and ultimately enhance the client experience.
The initiative, called One KYC, is a digital KYC utility that leverages Fenergo’s CLM and KYC technologies for the whole BNP Paribas group, enabling it to manage its corporate client relationships across all regions and business lines. Its aim was to create a repository of standardized, up to date, accurate and complete KYC data and documents to be relied upon, shared and reused across the group for all its corporate clients. One KYC is also aimed at aligning the BNP Paribas group with industry-leading KYC practices, allowing the bank to adapt to evolving regularity requirements quickly.
By providing the bank’s network with a single client view, One KYC enables quicker and more efficient onboarding of customers from different bank entities across the group, eliminating duplication, gaining efficiencies, and increasing transparency between entities operating within BNP Paribas’ global network. It also optimizes client experience.
To learn more about the BNP Paribas One KYC project, download the full case study.
KYC Process Innovation Investment Priorities
But where do firms start in building a connected and automated KYC ecosystem?
Our survey highlights the priorities: data and document collection via a client-facing digital channel or portal; the ongoing monitoring of primary sources to detect changes in ownership and control, and the necessary integration of transaction and behavior monitoring.
Transaction monitoring systems detect emerging financial crime risk and are an important element of a continuous KYC solution, yet our survey shows a low level of integration between KYC and transaction monitoring systems (Figure 9). This suggests that the historical siloed approach to solving KYC and transaction monitoring problems remains a concern.
Processes Prioritized for Automation (Figure 13)
Download the full KYC trends report to find out more on investment and digitalization priorities at top financial institutions.