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Controlling Compliance In A Changing Landscape

05 October 2020

National governments, international regulatory bodies, and both public and private sector institutions are being tested to their absolute limits by the COVID-19 outbreak.

Whilst the enormous near-term response is fully occupying most global operations, thoughts are also turning to longer term planning and how this unprecedented event will influence myriad policy considerations for years to come.

For the financial services industry, this comes on the back of a decade of great change vis-à-vis the regulatory environment, which arose in response to other greatly destabilizing events like the Global Financial Crisis, the Panama and Paradise Papers and the tragic occurrence of terrorist attacks worldwide. As governments implement Anti-Money Laundering (AML) and Counter Terrorist Financing (CTF) measures to address these events, financial institutions find themselves under growing pressure from regulators to satisfy these requirements.

It is no longer sufficient to simply be compliant; the emerging expectation is for financial institutions to also prove the effectiveness of their Anti-Financial Crime (AFC) policies. The effect of this increased compliance burden is an escalation of costs, both in terms of compliance expense as well as operational efficiency.

AMLD5 and Compliance

Efforts to address money laundering are ever-increasing and have exponentially widened compliancy requirements in recent years. The latest directive, AMLD 5 – set to be implemented by 2020 by all EU Member States – extends the scope of its predecessors and highlights certain focus areas, such as broadening the range of institutions affected by Know Your Customer (KYC) regulation. KYC processes currently cost the average bank $60m (€52.9m) annually, with some larger institutions spending up to $500m (€440.7m) every year on KYC and associated Customer Due Diligence (CDD).

Inaction is also costly, with unstructured efforts to remain compliant often leading to suboptimum operating practices that are both inefficient and of limited quality. The cost of non-compliance can extend further. In a recent report, KPMG estimates that US financial institutions have been fined US$24 billion dollars for non-compliance since 2008.

In order to stay ahead of these increasing costs and improve the quality of processes and files, financial institutions find themselves required to take a closer look at their Compliance Risk Management initiatives, their compliance policies and the data used for compliance and audit functions.

Relevant data and compliance policies in one auditable solution

In the effort to increase the efficiency of their compliance functions, organisations may have some key opportunities already within their reach. Strategy and KYC/AML policy alignment, compliance function integration and intelligent use of data all improve the consistency in process and provide better case and client insights through:

1. Defining and aligning the risk management strategy

Only half of Chief Compliance Officers (CCOs) hold a seat on their organisation’s Executive Management Committee. More than one-third of these say their compliance risk assessments operate siloed from other units. In a modernised and efficient compliance model, the CCO is viewed as a partner that provides meaningful insights to the business at the intersection of risk management and business efficiency. This process can be supported by using a specialised KYC consultancy provider to get better insights, enable process improvement and policy optimisation based on the KYC provider’s experience providing solutions to individual clients and the wider regulatory/compliance market.

2. Creating a holistic approach

By moving away from the siloed model and integrating the compliance function within the organization as a business partner, organisations gain wider business insights rather than merely viewing compliance as a cost center. The leveraging of people, knowledge, data and technologies across the business maximises operational excellence, with the resources, tools and data bolstering business performance by creating a better customer experience.

3. Managing talent

Identifying the right personnel to drive process efficiencies and eliminate redundancy is crucial. Scaling up teams as an initial response to overwhelming volumes leads many organisations to experience significant cost increases. However, this is more often a matter of process and resource optimization that must be re-aligned to a well-constructed strategy. Usage of a specialized KYC provider with scalable resources will expedite and enhance this process.

How EQ KYC Solutions can help you create a predictive model

Moving from a reactive to a predictive model functions as a catalyst for business growth, rather than a hindrance. As this process is hampered by compartmentalization within financial institutions and the fact that acquiring, storing and assessing the data is often not part of the institution’s core function, this process can be vastly improved by using a KYC-as-a-service provider that utilizes one auditable solution.

As top-tier experts in creating and implementing such solutions, EQ KYC Solutions helps their clients to dramatically improve their KYC compliance with precision and consistency, without losing competitive edge speed to market.

This solution integrates all the data in a consistent manner, creating not only a view on a specific client and related parties but also on the entire client base. By using best-of-breed third-party solutions such as EQ’s KYC-as-a-service model, this data can be analysed in an automated fashion in line with the most recent regulatory requirements. Change management becomes more agile and new solutions can therefore be added to the core solution offered. This data is then stored in a manner that enables and improves the audit trail. Financial institutions are therefore able to adhere to the most recent financial regulations and futureproof themselves against disruptive transformation.

Talk to EQ about KYC Solutions

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