Fenergo KYC Trends Report: US Investment Banks Navigate Intensified Regulatory Reform, Struggle to Match Compliance Staffing for Robust KYC

Persistent economic headwinds are squeezing US investment banks’ anti-crime compliance and client onboarding efforts  

NEW YORK – November 15th, 2023 – US investment banks have less budget and workforce to devote to fighting financial crime and adhere to changing regulation, according to the 2023 KYC Banking Trends Report by Fenergo, the leading provider of digital solutions for Know Your Customer (KYC), Transaction Monitoring and Client Lifecycle Management (CLM). Surveying high-level operations, risk and compliance, and information executives across the US, the study found that 51% of respondents lost at least one client due to slow and inefficient onboarding. In the face of adverse economic conditions, respondents named operational risk as their #1 priority for technology investment while legacy architecture topped the list of challenges banks seek to address with technology. 

Banks spend 35 days less per client to execute KYC reviews 

According to Fenergo’s study, KYC reviews for onboarding and maintenance now take a mean of 82 days to execute for each client, down from 117 days (circa four months) a year ago. The number of FIs that spent 121-180 days to complete a KYC review fell YoY by 59%. US investment bank leaders recorded progress in optimizing KYC review processes using technology, reducing mean costs ($2475) to complete a review, with an 24% YoY drop in those that spent at the high end, $3000-$4000 per review.  

“Investment banks are understandably concerned with operational risk as they grapple with inflationary pressures, reduced money supply and geopolitical uncertainty,” said Stella Clarke, Chief Strategy and Marketing Officer at Fenergo. “According to our data there are fewer available resources within risk and compliance departments, for reasons such as lay-offs, outsourcing and talent retention and the ask of these smaller functions remains to stay vigilant against financial crime and sanction violations in the face of heightened regulatory scrutiny. Therefore to compensate for people challenges, investment banks that continue to digitally transform AML/KYC compliance, transaction monitoring, and onboarding procedures will shorten their time to revenue and optimize client experience to secure relationships with their clients.” 

Investment banks are losing clients to onboarding problems 

While the data shows that automation has helped compliance and risk officers save time and money in executing KYC reviews, they are managing anti-financial crime compliance and risk mitigation with significantly lower staff (-12%) and budget allocations. Half of the investment banks surveyed lost a client due to slow and inefficient onboarding. Reduced resources are challenging them to provide frictionless client experiences, sufficient products/services availability, and efficient processes.   

Rory Doyle, Head of Financial Crime Policy, Fenergo, commented, “Investment banks made good progress addressing sudden challenges in 2022, such as dealing with sanctioned persons relating to Russia’s war in Ukraine and automating KYC processes. They are now in a tough spot, moving priorities toward mitigating operational risk while simultaneously trying to stop financial crimes and the loss of clients from problematic customer experiences in onboarding. There have been numerous banking layoffs in the US recently which may contribute to the decline we’re seeing in staff now numbers. Plus, compliance leaders are preparing for further regulatory changes. For example The Financial Crimes Enforcement Network (FinCen) is applying additional scrutiny on beneficial ownership and KYC in the areas of correspondent banking and FIs are still adapting to reforms made by the Anti-Money Laundering Act of 2020 around beneficial ownership reporting, strengthened whistleblower protection and the enhancement of AML/counter funding of terrorism (CFT) frameworks. This is a less than optimum time to curb financial crime technology investment.”

Legacy systems continue to impact client experience 

According to Fenergo’s study, legacy architecture (44%) and revenue growth targets (39%) top the list of challenges banks seek to address with tech investment. Specifically, compliance and risk officers said they are most challenged by incumbent transaction monitoring systems that produce high false positive rates, an inability to scale in response to increasing transaction volumes, and difficulty implementing new rules or adapting existing ones. 

KYC from a global lens: $2598 for every client review 

Fenergo’s global data finds that the number of people carrying out KYC tasks has decreased worldwide as well as in the US - down 14% from 2022. More than one in five (22%) institutions still employ between 2,000-3,000 people to process KYC. Globally, institutions have an average of 1,566 staff handling KYC, and the average cost of carrying out a single KYC review has increased by 17% since 2022 to $2,598. 

Fenergo additionally conducted a research report of US commercial banking KYC trends, which results can be found here.  

Methodology: Fenergo commissioned Censuswide to survey 1,164 Chief Operations Officers, Chief Compliance Officers, Chief Risk Officers, and Chief Information Officers in global investment banks across the US, UK, Australia, Singapore, Germany, and Japan. The survey was carried out between October and September 2023.  

About Fenergo:    

Fenergo is the leading provider of Client Lifecycle Management (CLM) solutions that digitally transform how financial institutions, asset management and fintech firms onboard and manage clients throughout their client lifecycle. Its software digitally orchestrates every client journey from initial Know your Customer (KYC) and client onboarding, automating regulatory compliance and enabling continuous monitoring throughout the client lifecycle (transaction monitoring, perpetual KYC), all the way to client offboarding. Fenergo is recognized for its in-depth financial services and regulatory expertise and out-of-the-box rules engine which ensures financial institutions are future-proofed against evolving Environmental, Social and Governance (ESG), KYC, Anti-Money-Laundering (AML), tax and prudential regulations across 120+ jurisdictions. Headquartered in Dublin, Ireland, Fenergo has offices in North America, the UK, Poland, Spain, South Africa, Asia Pacific, and the United Arab Emirates.  

For further information about Fenergo, please visit: www.fenergo.com