Why a Dynamic Approach to KYC and AML Pays

Fenergo is a proud content partner of The Times Financial Crime & Fraud supplement by Raconteur.  

The below article was originally published in a recent Raconteur report: Fraud and Financial Crime 2023.

Hear from Fenergo's Chief Strategy and Marketing Officer, Stella Clarke, on why continuous risk monitoring is essential for FIs, especially Fintechs, in today's turbulent socio-economic climate. 

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Financial Crime Compliance: The Case for Automation in a Post-Covid Climate 

Things have always moved quickly in financial services. But the same is now true of lots of sectors too, especially over the past couple of years.

"The world is moving much more permanently online, post-Covid," says Stella Clarke, Chief Strategy and Marketing Officer at financial software company Fenergo. "Things that we never thought we'd be able to do in financial services, we can now actually do online."

And at the same time, we're facing geopolitical and economic uncertainty on a scale we haven't seen for decades. It all means that investment in new business is tightening, and at a consumer level, people are shopping around for services in a way they haven't previously. It's a buyer's market rather than a seller's one.

Unfortunately, those customers aren't always being honest in ways they used to. The cost-of-living crisis means that financial crime and money-laundering are increasing as people are tempted to try and one-up the system. And those who aren't deliberately engaging in fraud are often caught up in it as victims. "In an economic crisis, people become much more vulnerable to being defrauded, especially those who are economically stressed," says Clarke.

That creates a double whammy for banks and fintech firms. They're being asked to keep track of ever more elusive customers, doing so remotely thanks to the great post-pandemic move online, while also fearing that ever more stringent regulation could result in enforcement action against them, hitting at a time when they really can't afford to be hauled over the coals.

Banks and Fintechs Need to Automate AML and KYC to Improve Customer Experience 

These macroeconomic and societal trends make it more important than ever for financial institutions to have an automated system and process to onboard customers and check their bona fides. Traditionally, banks have lagged behind other industries when it comes to digital transformation. Many are still stuck in the era of manual checks for compliance, document scanning and signing, and other kinds of paperwork. It's inefficient and offputting for customers, who increasingly value convenience first. The more time a customer spends becoming, rather than being, a customer, the less likely they are to recommend a service to their friends and colleagues. And a Fenergo survey (KYC in 2022) of chief operations officers, chief compliance officers and chief risk officers shows that 60% of know your customer (KYC) checks take more than 60 days to complete for large corporate customers.

But it's not just the threat of losing customers that's making banks think twice about the old ways of doing things. Nine out of 10 of those surveyed agree that manual KYC processes affect their ability to make better risk decisions. And the more humans are involved, the greater the chance of error.

A manual KYC and customer acquisition process can very quickly become a risk. "Manual checks prevent organisations having a single view of each client," says Clarke.

"You can miss tell-tale signs of risk when onboarding is done manually, such as who a company's shareholders are and who they're connected to."

- Stella Clarke

That's a reputational and regulatory risk for financial businesses. who say between a third and half of all KYC review tasks are still done manually.

It's made all the more challenging by rising competition in the sector, and the need to drive down costs versus your peers. "Banks are facing this increased risk on one side from a financial perspective, but are also being told by their boards that they need to cut budgets or find a better way to solve this problem," says Clarke.

There is a way. Technology can automatically monitor and conduct anti-money-laundering (AML) and KYC checks to ensure financial firms stay on the right side of their compliance requirements, while also making customers happier about the process of banking with them. In total, 62% of executives surveyed by Fenergo say that technology for automation is their key KYC budget priority, compared with the 38% who are looking to increase headcount to make the manual, human-led process more efficient.

Why Technology Vendor Partnerships are Critical to Success in Financial Crime Compliance  

For those taking the technological route, it's all about finding the right vendor. "This is what we strive to do. We collect all the information needed from a prospective customer when they want to sign up, whether that's for a business bank account, a big corporate bank account or a high net worth individual," says Fenergo's Clarke.

Automating the key processes required to meet regulatory compliance requirements also helps to provide the best experience to the customer. "We're efficient at concentrating on letting the good people come into a financial institution, whether they're a company or a person, but taking care of all the compliance bits that need to happen automatically in the background," says Clarke. This provides a valid, detailed, single client view in real time, helping to mitigate and prevent the risks of money-laundering. It gives the agility and benefits of the cloud, with all the assurance of a data-led approach.

Banks need a solution that provides confidence that they're doing the right thing, even in the fast-moving world of financial regulatory changes. And, even better, this has the halo effect of making customers more confident in a bank's ability to serve them in the best possible way.

Client lifecycle management (CLM) technology of this kind helps banking incumbents move from manual oversight to automated, hands-off checking in real time, ensuring they can keep their position in the market. And for new, nimbler fintechs, it's a chance to get into the market without the large headcount traditionally associated with KYC and AML checks, so they can compete at a high level.

"Whether you have 1,000 people with pens and paper or you use the latest cutting-edge technology, if you don't do it properly, you will be vulnerable to error and you will get fined by the regulators," says Clarke. "CLM technology can solve a regulatory compliance problem and keep out of the way of the customer experience."

And crucially, this is an opportunity for business leaders to focus on generating and growing revenue for the future. "The faster institutions are going to win," says Clarke. "Because they make things easier for their customers."

To discover the differences between AML & KYC, check out our blog. 

Related Content

Read the full version of Raconteur's Fraud & Financial Crime 2023 supplement.

For more insights into 2023’s key trends, discover Fenergo’s 5 Predictions for 2023 for Financial Institutions, or check out the Fenergo FinTalks podcast episode where we asked FinCrime experts ‘What Will 2023 Hold for Financial Services?’