Commercial banks tackle an evolving KYC landscape and streamlining operational risks, revealing technology automation gaps

Fenergo analysis reveals only 17% of commercial banks employ fully automated workflows for credit decisioning 

NEW YORK, June 26th, 2024 - Fenergo, the leading provider of tailored software-as-a-service (SaaS) solutions for Know Your Customer (KYC), Transaction Monitoring (TM), and Client Lifecycle Management (CLM), announced today the findings from its KYC in Commercial Banking research, which analyzed responses from mid-market commercial banks in the US with assets ranging from $10 billion to $100 billion. Survey respondents included Chief Operations Officers (COOs), Chief Compliance Officers (CCOs), Chief Risk Officers (CROs), and Chief Information Officers (CIOs).

"The evolving landscape of regulatory scrutiny, notably from the Consumer Financial Protection Bureau and the US Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN), is significantly impacting commercial banks,” said Tracy Moore, Director of Thought Leadership & Regulatory Affairs, Fenergo. “These institutions now face heightened compliance burdens and data management challenges due to changes like Section 1071 and the Corporate Transparency Act, which demand more stringent reporting and due diligence based on lending volume and ownership disclosures. Navigating these complexities requires robust adaptation strategies to meet increased operational and privacy demands."

Technology priorities and risk management

Fenergo’s analysis revealed that overall, operational risk (37%) takes the lead as the top priority area for technology investment, closely followed by information and cyber security risk (36%) and financial crime risk (36%). This trend is reversed among the portion of banks surveyed managing $51-100 billion in financial assets. These banks place financial crime risk as their number one priority for technology investment. 

Challenges and opportunities in compliance efficiency    

The report reveals significant trends in compliance cost allocation among US commercial banks. Notably, 20% of these banks dedicate over half (51-70%) of their entire compliance budget to KYC efforts, while almost 40% allocate more than a third (31-40%) of their budgets to KYC. 

The study highlights challenges in KYC review timelines, with over a quarter (28%) of respondents indicating a duration of 121-150 days for medium-risk client reviews, and 16% reporting a longer period of up to 210 days.

The application of Artificial Intelligence (AI) and Machine Learning (ML) is gaining traction in bolstering efficiency in detecting and preventing financial crime risk, according to the analysis. Key areas where this technology is being applied include reporting, behavior detection and case management.

Navigating client expectations and regulatory demands

The analysis uncovered that half (50%) of respondents reported losing clients due to slow and inefficient onboarding processes, citing the volume of information required, poor data management and insufficient product or service offerings as the top three factors.

When it comes to business challenges driving technology investment decisions, the study found that revenue growth targets, losing customers to digital-first competitors and the risk of disintermediation are the top three today. Added Moore: “In fact, 47% are concerned with growth above all else. Any tool, strategy, or asset that fails to catalyze revenue expansion represents untapped potential. Given resource constraints, compliance leaders face the crucial task of prioritizing challenges and allocating efforts judiciously.” 

According to the findings, only 17% of respondents employ fully automated workflows for credit decisioning processes, with the remainder relying instead on manual or semi-manual methods for medium-risk clients. Added Moore, “This reliance on legacy systems not only perpetuates manual, time-consuming processes but also amplifies challenges in KYC compliance. The consequence? A compromised customer experience, regulatory scrutiny and missed revenue opportunities. For a more efficient, compliant, and customer-centric future, embracing innovation and streamlining operations is imperative.” 

Commenting on the findings, Moore concluded, "These insights underscore the critical role technology plays in navigating complex compliance landscapes, while also highlighting the challenges organizations face in balancing efficiency with risk mitigation. As financial institutions continue to grapple with evolving regulatory requirements and client expectations, technological innovation must remain central to their strategies to be successful.” 

On August 7th, Fenergo will be reveal the findings in full and assess key trends emerging from this research in a webinar.