The 6 Es to Taking the Complexity Out of Customer Due Diligence
In 2001, Know Your Customer (KYC), Anti-Money Laundering (AML), and Customer Due Diligence (CDD) regulations were enacted as part of the USA PATRIOT Act—and the compliance burden and requirements for financial institutions have only increased over time and across the globe.
For every new account or loan, your bank needs to:
- Check customer identity information against numerous watch lists and public record databases
- Collect and integrate the necessary external data with your internal systems
- Conduct ongoing due diligence for material changes, such as address changes
In short, prove customers are who they say they are.
According to a recent Thomson Reuters survey, changing regulations, increasing costs, and the amount of dedicated resources required to adhere to KYC are all critical issues.1 Faced with these mounting challenges, the average financial firm spends $60 million per year on KYC, CDD, and client onboarding. Some spend more than $500 million annually on these activities.2
Adding More People Isn’t a Cost-Effective Solution
Many financial institutions rely on time-consuming, manual processes to manage KYC compliance. And with the increasing amount of documentation required to verify customer identities, banks then often hire more staff to ensure information submitted is complete and accurate.
Over the past year, 50 percent of financial institutions have added employees to keep up with KYC compliance, and an average of 68 employees work on KYC adherence and processing within a financial institution.3 Yet, despite these numbers, the Thomson Reuters survey identified that the biggest single challenge in managing KYC processes was a lack of qualified resources.
But adding more employees to do manual work doesn’t solve your KYC challenges. In fact, it adds to them.
The more manual tasks your employees perform, the greater the chance of errors. Mistakes in areas such as data entry can lead to non-compliance and hefty KYC fines. Since 2013, financial institutions that failed to meet KYC regulations have been hit with more than $10 billion in penalties.
Manual processes also slow your customer onboarding. In 2015, it took financial institutions 24 days to onboard a new client—22 percent higher than it took in 2014—and onboarding times are expected to have increased by another 18 percent in 2016.4 The longer it takes to open a new account or approve a loan, the more likely new customers will become frustrated and take their business elsewhere.
The 6 Es to a Smart, Automated KYC Workflow
With the avalanche of compliance challenges, 79 percent of respondents in the Thomson Reuters survey having already changed their KYC processes or are considering doing so in the near future.5 Many firms are turning to newer, cost-effective technology to automate and streamline their KYC processes.
So, how can you evaluate potential solutions and ensure you implement the right one? Here are six Es for smart, agile technology that help ease your KYC compliance burden.
- Enhanced customer engagement
Customers expect fast, responsive service in the Age of the Customer and digital transformation–whether they are banking in a branch or on a mobile device. Your technology should improve your customer experience across your in-person and self-service channels.
Look for technology that reduces your customer onboarding times. For example, does it perform swift identity verifications and shorten your processing periods? Does it automate your ongoing monitoring and due diligence?
- Elimination of manual errors
In a University of Nevada, Las Vegas study, students who entered data manually made an average of 10.23 errors. When an automated system checked the entries for matches, the error rate dropped to 0.38. When a single, unified database pulled information–requiring no double entry or data migration–there was virtually zero chance of human error.6
You want a solution that will eliminate as many manual KYC tasks as possible. This will help you reduce costly errors, avoid rework and remain compliant.
- Enhanced efficiencies
Look for a platform that builds efficiency into your KYC processes, so you can save time, lower your costs, and free up your employees for more valuable work.
Can you eliminate manual regulatory data collection and monitoring? Will the technology automate verification of customer identities against data sources and sanction lists? Can multiple data sources be queried simultaneously?
By replacing manual processes with electronic identify verification, your bank can increase efficiencies while also reducing costs by up to 70 percent.6
- Easy-to-use software
Many banks purchase automation software that requires heavy involvement from IT. For example, the IT department must code it, set it up, manage it, and constantly troubleshoot it. Look for software that is easy to use and won’t bog your IT department down with mundane tasks and interventions.
- End-to-end tools
Your platform should include end-to-end tools for design development, real-time testing, and debugging. It should easily integrate with your architecture, so you don’t need to rip and replace your existing systems.
Also consider automation technology that provides near real-time business intelligence and analytics that help you make informed decisions, so you can identify opportunities to further optimize your processes and increase effectiveness.
- Expandable architectures
Only 30 percent of bank executives feel their operational processes can adapt quickly to external changes.7 So you want a platform that easily scales, enabling you to quickly adapt to changing regulations, customer demands, and market fluctuations.
Does the solution provide a modular software framework that allows you to build your own unique, customized workflow? An out-of-the box, one-size-fits-all system will not give you the flexibility to tailor the solution as your business grows, and the needs and demands of your customer base inevitably evolve.
Banking on Intelligent Bots for KYC Compliance
Robotic process automation (RPA) is an emerging solution that can quickly be deployed to eliminate manual processes for KYC compliance. RPA uses software robots and intelligent business rules to mimic the actions your employees take while performing tasks in various applications.
RPA automatically checks an individual’s background against thousands of sites, including monitoring sanctions lists from sources such as the U.S. Treasury and Immigration and Customs Enforcement. It also helps you respond faster to regulatory updates by automatically monitoring and extracting data from regulatory sites.
With RPA, you can decrease your processing times by 30 – 50 percent. In fact, it’s possible to reduce cycle times by as much as 90 percent.8 RPA also delivers 100% accurate data and audit trails–helping you eliminate costly errors and demonstrate compliance.
Reducing Information Retrieval Times by 96 Percent
A leading global financial institution leveraged RPA to simplify and speed KYC compliance in its Information Analysis Unit (IAU).
The IAU is responsible for researching and assessing the impact of irregularities, infractions and criminal activities. It took their analysts an average of two hours to manually collect and organize materials for each case.
With RPA, now they can automatically pull data from 40 internal and external sources. Automated search queries locate the relevant data and organize it. And RPA’s flexible and non-intrusive approach does not require external APIs or integration with existing IT systems.
The bank has improved its information retrieval time by up to 96 percent per case, saved analysts an average of 480 hours per month, and increased the accuracy of its search results and risk exposure assessments
Learn more on how to take the complexity out of KYC compliance. Download the whitepaper KYC Sparks an Automation Revolution with RPA. Also check out The Top 5 Reasons You Need Robotic Process Automation for KYC infographic.
1 Thomson Reuters, A KYC Solution for Banks, 2015
2,3 Thomson Reuters, 2016 Know Your Customer Survey, May 2016
4 South China Morning Post, Criminals hide behind regulatory barriers while banks pay the price, June 17, 2016
5 Thomson Reuters, A KYC Solution for Banks, 2015
6 Ungerboeck Software, “When Good Info Goes Bad: The Real Cost of Human Data Errors,” May 19, 2014
7 CapGemini Consulting, Backing up the Digital Front: Digitizing the Banking Back Office
8 Virttia, 8 Benefits of Robotic Process Automation