Customer onboarding processes are often complex and burdensome, leading to poor customer service despite significant investment and costly penalties resulting from non-compliance with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations. These problems can damage financial firms’ customer relationships, reputations and ongoing business, but they are not insurmountable if collaborative technology approaches are embraced and the industry agrees that a problem shared is a problem solved.
The issues of customer onboarding and how it can best be improved were discussed recently during an A-Team Group webinar sponsored by Strevus and entitled ‘The Next Frontier of Customer Due Diligence for KYC and AML’. Joining moderator Sarah Underwood, an A-Team editor, were experts Ken Price, vice president of business development and alliances at Strevus; Dmitri Korablev, vice president of engineering at Strevus; and Richard Snookes, head of financial crime, wholesale and corporate, Santander UK Corporate and Commercial.
If you missed the webinar, you can hear a full recording and download a Strevus White Paper entitled ‘A New Approach to Client Onboarding: How to Combat the Growing Cost and Complexity of Client Due Diligence’ here.
The impact of regulatory change
Considering the impact of regulatory change on customer onboarding and due diligence requirements, Snookes said: “It has always been illegal to handle the proceeds of crime, so it is not necessarily regulation that has caused change to customer onboarding, but the way regulations are applied and the exponential increase in penalties for non-compliance. Banks are increasingly considered by law enforcement agencies as the front line defence when it comes to financial crime prevention. The days have gone when a regulatory visit entailed sitting down with a supervisor and discussing compliance. Now, evidential proof of correct systems and controls is required. My perspective is that regulators expect firms to risk asses and monitor their customer bases and have effective surveillance tools. But if you don’t have accurate client data there is no chance of building anything on top of it.”
On the issue of data and ever increasing regulation, Price added: “Over the past decade, we have gone from a scarcity of data and sources to content proliferation and multiple sources. How to handle so many data sources and so much data is a challenge. So, too, is the juxtaposition of regulation and legislation, as firms must comply with regulatory requirements, but legislation can prevent sharing of some information across international institutions. This is a difficult conflict to resolve and the question is whether a financial institution can put customer information in a secure place, where the customer can access it electronically and provide permission for others to use it. I don’t have an answer to this, but there is tension here and resolutions will be driven into the market and we will be active in that discussion.”
Challenges and opportunities
From a customer point of view, today’s onboarding processes are often suboptimal.
Korablev explained: “The typical customer experience is being given a pile of forms to fill in by hand. It is not uncommon for customers to have to enter the same information a dozen times, the forms can be confusing, setting up an account can take a long time and the customer has to make a significant effort. There is little collaboration around providing and collecting the data.”
From a bank’s perspective one challenge is gaining intellectual property rights to customer content. Price said: “Banks need to know from data vendors what they can do with the content and how they can share it. We are seeing a revolution in customer data being addressed by many initiatives, which is exciting.”
If the customer experience is often suboptimal, how can it be made optimal and provide benefits and competitive advantage for the bank? Answering this questions, Snookes said: “It amazes me that it seems to be very difficult to make client data fungible across all areas of an organisation when it seems to be easy to do the same with, say, credit or trading authority. This is a problem that has been solved in other areas so is not surmountable.”
Snookes went on to describe the potential benefit to banks of empowering customers to use a self-service model for onboarding and suggested that in some instances it could be suitable to slim down due diligence if a customer is not expected to use many bank services. Looking at competitive advantage that can be derived from efficient onboarding, he noted that firms with solid onboarding controls can have a different risk appetite to those with poor controls, and a better view of whether to de-risk customer groups. He also pointed out that when employees must take personal responsibility within a firm, it is difficult to hire or retain top talent if the organisation has poor controls. He added: “These things are all drivers for developing an efficient onboarding programme and can deliver competitive advantage.”
New approaches to customer onboarding
Turning to new approaches to customer onboarding, Korablev described the need to move on from traditional master data management projects and consider emerging utilities being set up by industry alliances to aggregate and consolidate data from a number of sources. But he cautioned: “This is not just a data game, firms must optimise how they work with customers and this is where collaboration comes in.”
Working collaboratively, Korablev suggested firms could cut down onboarding time, make sure customers are not asked for the same information many times and better manage the use of data with privacy constraints. He said: “The need is to look at the complete customer management lifecycle. With regulations changing quickly and the number of specific disclosure requirements rising, firms cannot continue to do what they have done traditionally because this ends up with them asking for the same information many times. Firms need to aggregate and consolidate customer data and input it to customer centric programmes. Then they can communicate better with customers.
“The next frontier is to use customer information across the industry. Growth in regulation and information that must be managed means no-one can run an efficient programme alone. Industry consortia and commercial vendors are looking to provide shared solutions and these will provide a new technology landscape.”
Summing up the advantages of new approaches, Price said: “These will drive efficiency, improve customer experience and create new business opportunities.”
Concluding with some advice for data practitioners working on customer due diligence, he added: “The need is for collaboration around industry utilities and collaboration internally and with customers, regulators and legislators. Innovation is also important. Look at new technologies and embrace innovation to maximise efficiency and improve risk management. Finally, consider optimisation as innovative technology approaches allow firms to take advantage of commonalities and customise solutions to provide maximum value for the business.”