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KYC compliance for banks: Addressing the cost

Managing the costs of Know Your Customer (KYC) compliance for onboarding and maintenance is a significant challenge for financial institutions (FIs) worldwide as they fight money laundering.  

Ever-evolving compliance regulations add cost and complexity to onboarding and maintaining clients. Did you know that more than half (54%) of corporate and institutional banks spend between $1,500 and $3,000 to complete just one client’s KYC review? One in five (21%) spend more than $3,000 per client review, according to Fenergo’s global KYC in 2022 research report* investigating the cost of people-driven and laborious KYC practices. 

KYC compliance has long been a critical part of the client lifecycle and has significant implications on how fast a bank can generate revenue. Yet, financial institutions worldwide spend millions of dollars every year onboarding and maintaining clients inefficiently. 

We held a webinar to discuss the findings of the KYC in 2022 report with some leading authorities from across the financial services industry. Delegates agreed that data was the biggest challenge for accurate KYC compliance in banking.

The webinar moderator, Oonagh van den Berg, founder of Virtual Risk Solutions, said the report findings are incredibly positive as it demonstrates that the industry is beginning to move towards automation of KYC processes.

Investment-wise, financial crime is now just behind cyber risk and info security,” van den Berg commented. “However, there continues to be a huge allocation of cost and time into KYC at onboarding and periodic review stages.”


Understanding the scale of the KYC challenge

Fenergo’s research finds that large FIs spend up to $30 million annually on KYC when onboarding new clients. More than half (52%) spend between 61 and 150 days on client KYC reviews; much of this work is spent gathering and inputting data across multiple systems.

Overall, more than 80% of respondents to Fenergo’s study say they have between 1,000 and 2,500 employees working on KYC tasks. Nine in ten (90%) FIs tell us that labor-intensive KYC efforts impact their ability to make better risk decisions. More than half of financial institutions say that between 31-60% of their KYC review tasks are still being completed manually, which helps explain why nearly two-thirds (62%) are now focussing on investing in technology to help automate many tasks.

It’s probably no surprise to anyone working in a large bank that allocation to full-time employees to KYC is large – it’s pretty staggering from a cost perspective,” van den Berg added. “We can improve the time required for KYC reviews if we have clear synergies across the collection of client data, record keeping, and also synergies across departments.”

Neil Katkov, Director of Risk at Celent, said that there is still a significant difference between the way technology is used by banks to help onboard retail customers compared to corporate and institutional banks. Katkov added that banks should look to add technology such as self-service, artificial intelligence (AI) and natural language processing (NLP) to improve their KYC process flow.

The goal should be to have a KYC system that can assemble and analyse all the needed documentation and data into a dossier together with the risk score or recommendation, made by prediction analytics and machine learning, and deliver it to compliance analysts for review and confirmation,” Katkov concluded. “To make sure that analysts are not overwhelmed, do this on a rolling basis using perpetual KYC that will flag accounts of immediate concern but also, very importantly, identify low-risk accounts so that things can be structured to support a risk-based approach to avoid the overload of capacity there.

As the challenging global economic climate puts an even greater emphasis on cost control, more financial institutions are looking for ways to streamline the client lifecycle management process and drive much needed efficiencies. Yet our research also reveals an inflection point in the industry, where for every dollar spent on people, two is spent on technology for automation.

There is clearly an ongoing challenge to address as banks look to automate their KYC process flow. Download your copy of Fenergo’s KYC in 2022 report here

*For Fenergo’s global research report investigating the costs of manual KYC, Fenergo studied more than 1,000 C-level executives across corporate and institutional banks.