More than a decade of Know Your Customer (KYC) regulations has left financial institutions with a potential time bomb in their data systems. Outdated and legacy onboarding data has the potential not only to lead to erroneous decision making but also potentially crippling fines from compliance breaches.
There are many reasons why KYC data might be stale. Individuals and entities may have changed names, addresses or other informational attributes and forgotten to – deliberately chosen not to – inform their banks. As well, as the expectations and frameworks of regulations change, those KYC data sets simply may not hold enough information to satisfy the new demands of regulators.Now, as regulations tighten further and overseers request more detail on banks’ clients, legacy data has emerged as a substantial risk for them. The problem for many, however, has been identifying what data is old and no longer pertinent.
Commercial digital identity provider Encompass launched a solution in February for banks of all sizes, but most importantly for commercial banks that have thousands of corporate clients invested through them.
EC Review enables clients to identify and rectify stagnant KYC data using live searches of trusted authoritative data sources. The new feature enables banks to update and refresh corporate client data in real-time, creating permanent KYC capabilities.
Encompass KYC transformation director Howard Wimpory said that the new functionality was developed amid mounting pressure on clients to bolster their KYC screening processes, especially in advance of a new anti-money laundering regulation (AMLR) expected from the EU next year.
“They’re recognising that their book isn’t necessarily at the required level for the new standard,” Wimpory told Data Management Insight. “There’s also an anxiety in having to deal with a central European regulator after dealing with local ones for many years. Clients don’t know what to expect – how they’re going to interpret things.”
New Regulation Requires New Ways of Thinking
AMLR will introduce a bloc-wide rulebook on preventing money laundering next July. It will be introduced along with the EU’s move towards stronger electronic identification, linked to eIDAS 2, notified electronic IDs, Qualified Trust Services and the European Digital Identity (EUDI) Wallet.Wimpory said the new regulation will force a substantial uplift in the due diligence processes of many institutions, who are used to dealing with individual state-level oversight teams. As a result, some are taking the opportunity to completely upgrade their AML workflows.
“They’re saying that while they are filling the gaps in their processes, they might as well refresh the entire book so that when the regulator comes, they are showing a record that was updated within the last short period rather than one that’s never been updated,” he said.
It’s as they have been taking a full look across their book of clients and customers that they have found data that no longer tallies.
Data Validation and Comparison
EC Review integrates with Encompass’ EC360 Corporate Digital Identity platform, which validates the onboarding data given by individuals and entities by comparing it with information kept on them in publicly accessible registries and other sources.
The latest addition to the platform takes banks’ client names and identifiers, pulls up the latest data on them and facilitates comparison of the two data sets. There, banks can identify where there have been changes to their counterparties’ information. The process is risk adjusted to ensure that minor changes are deprioritised in the reconciliation process.“EC Review leverages our existing capability but makes it an easy, short-form, fast-to-implement service for a bank,” Wimpory said.
The new service utilises AI-driven intelligent document processing to lift attributes from unstructured data sources and convert it into information that can be ingested into organisations’ KYC setups. Otherwise, it leans on algorithms that codify searches across public data repositories.
Wimpory said that banks and institutions are clamouring to get their data estates up to date because regulations are toughening and the penalties for compliance breaches, even from a genuine mistake linked to legacy data, can be damaging.
“Banks are motivated to do the right thing now,” he said. “It’s a reputational issue and more particularly it’s a risk detection issue.”
“Banks will no longer see compliance as a tick-box exercise. It’s a risk-mitigation process. It’s good discipline. And if their records are out of date, then they can’t be applying the right discipline.”
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