With Banks and Financial Institutions facing increasing demands from Regulators, the KYC/AML frameworks they have in place, including policies, procedures, technology and people have never been more important.
In this article, we have identified a number of key trends in the industry and taken the opportunity to shine a lens specifically on the new customer onboarding process, sharing with you our views on how this experience could be improved through the introduction of a Full Service KYC Utility model.
Some of the key trends we have identified; and you will no doubt recognise include:
Increase and changes in regulation resulting in significant and ongoing changes to risk policies
- FinCEN’s proposed beneficial owner’s rules, FATCA and the Fourth EU Anti Money Laundering Directive have been cited as being responsible for significant increases in workload*
- Introduction of 2012 Financial Action Task Force Principles requiring you to “Know Your Customer” at all times
Regulatory imposed fines and reputational damage
- Financial institutions across the world being fined for failings in the KYC/AML processes, running into £bns - and not just in the US but also now in the UK
Customer dissatisfaction due to protracted and inefficient on-boarding processes
- Reported onboarding timelines ranging from days, to weeks to months
- FATCA requirements driving changes in organisations onboarding process with enhanced identity verification and standardised on-boarding processes across business units called out as the most common changes**
Increase in large scale remediation exercises placing huge demand on BAU teams
- More and more Banks and Financial Institutions are taking proactive steps or being driven to enhance and align internal policies leading to large scale outsourced KYC remediation projects
So, looking at the specific challenges around onboarding; the customer experience, time to revenue for businesses and standardisation of regulatory requirements, we would like to share an insight into our views on the benefits of the Full Service Utility model and going one step further, National Utilities.
Full Service Utility Model
Many of the existing ‘Utilities’ in the market today are in essence data vendors, covering only some of the top 1% of legal entities – due to the lack of available structured, publicly sourced data.
Many financial institutions struggle with difficult private company ownership discovery and outreach in the ever expanding corporate, commercial and retail business banking space. Add to this the specific risk policies, evidencing and assessment requirements for each Financial Institution and its clear to see the significant challenges posed to any specific or shared onboarding and the ongoing due diligence process. As a consequence, the full-blown KYC identification, verification, ownership investigation, screening and risk assessment is more than often not being handled outside of the various Utilities by the banks/institutions themselves.
We propose that our Full Service Utility model can help provide the market with an end-to-end, fully comprehensive client onboarding, KYC/CDD solution deriving all the benefits of the standard utility depicted in the figure below. However, we would also suggest that with a Full Service Utility neither standardisation of policy frameworks nor regulatory compliance via external interpretation (or de-scoping) are necessary.
Instead, a ‘needs’ based Full Service Utility offers standardisation in operations driving efficiencies, improving the customer experience and reducing time to revenue whilst technology supported consistent, complete and accurate execution satisfies regulatory compliance.
Taking the Full Service Utility model a step further we have seen much interest in our National Utilities ideas; the result of a consortium of financial institutions in one jurisdiction coming together under one regulator.
The additional advantages as we see them are:
- Participant Intimacy: all the participants know each other, share a vision and have a certain level of trust and goodwill
- One Regime: at national level, there is only one regulator (or set of national regulators), one data protection regime under one political entity
- National Interest: faster, smarter and more cost-effective risk assessment and due diligence for all national participants. Better risk means better financial services. World class Utility can serve as the base for services exports. Creates employment, higher standards and safe and effective base for further FDI.
Click here to request the Full Service / National Utility report and commentary.
The ability for a Full Service Utility or National Utility to provide a consistent and complete end-to-end onboarding solution, streamlining the verification and evidencing process, with specialist support via technology led customer outreach workflow solutions, would in our opinion be a significant step forward in improving the customer onboarding experience for both the Corporate and its customers.
Our final thought is that KYC is a social responsibility; and regulation has been put in place to reflect this imperative. However, with ever changing regulatory requirements placing huge demand on front, middle and back office resource pools of all financial institutions the cost of doing business continues to increase.
We believe we perform KYC within our industries not because of the regulatory requirement to do so but because it is the right thing to do. This constant challenge is best addressed by having the right mixture of suitably trained people, robust processes delivering consistent outcomes and flexible technology that can easily adapt to changes in approach and policy.
Standardisation, where possible, can bring many additional benefits and there are solutions available in the market today that can support both standardisation where relevant whilst retaining the bespoke requirements of each financial institution.
* 60% of respondents to the 2016 ACAM’s & Dow Jones Global AML Survey
** 70% of respondents to the 2016 ACAM’s & Dow Jones Global AML Survey reported they have already made or are considering making changes to their onboarding process