The cost of inefficiency in Know Your Customer (KYC) processes goes far beyond regulatory penalties. According to the Global KYC Trends in 2024 for Asset Management report by CLM platform provider Fenergo, 74% of asset managers surveyed reported losing investors due to slow, complex, and disjointed onboarding processes. These losses are not just missed opportunities—they represent a direct hit to growth and profitability, compounding the already high costs of compliance. With nearly two-thirds of firms allocating over 30% of their compliance budgets to KYC.
During a webinar accompanying the report’s release, industry experts examined the root causes of these challenges. One panelist noted, “Bad data in means bad results out,” highlighting how fragmented workflows and repeated document requests erode investor trust. The panel agreed that integrating technology—such as centralizing data and leveraging APIs for transparency—could transform onboarding into a seamless, value-adding experience. However, the survey revealed that no firm has fully automated its onboarding process, leaving a significant gap between current practices and investor expectations.Root Causes of Inefficiency
The panel traced investor churn to several underlying causes, with a lack of transparency being the most prominent. Investors frequently experience frustration due to unclear communication and multiple requests for the same documentation – the number one cause of frustration according to the survey. “Transparency is key clients need to see what we see, in real time,” a panelist emphasized. Providing visibility into the onboarding process not only mitigates frustration but also fosters trust.
Operational silos also contribute to inefficiencies. Fragmented workflows and disjointed data systems create redundancies that slow down compliance efforts. Technology gaps further exacerbate delays, preventing firms from providing real-time updates to clients. To address these issues, the panel stressed the importance of asset managers partnering with distribution networks, asset servicers, and other intermediaries. “Asset managers and funds need to partner with their distribution networks and share technology for a common investor journey,” one expert noted. Collaborative tools, such as APIs and shared portals, were highlighted as effective solutions for reducing friction and improving transparency.
Reimagining the onboarding experience requires firms to prioritize both operational efficiency and investor satisfaction. As one panelist remarked, “If that investor is not satisfied or delighted, they won’t come back. And the other thing is, we’re not different to retail in that regard—they will tell their friends.” By focusing on creating a positive first impression, firms can turn onboarding into an opportunity to build loyalty and trust.
The Rising Costs of KYC
Conducting KYC reviews is becoming increasingly expensive for asset managers, especially as compliance demands grow. Fenergo’s report revealed that nearly 65% of firms spend between $2,000 and $5,000 per review, with larger firms incurring even higher costs due to broader risk exposure and stricter regulatory requirements. These cost pressures are compounded by inefficient manual processes and fragmented systems that fail to streamline operations.
One panelist noted, “Manual processes equal increased costs and risks of lower-quality outcomes due to user error.” Labor-intensive methods drive up expenses while creating bottlenecks that hinder efficiency. For example, firms managing over $250 billion in assets reported an average cost of $2,656 per review, significantly above the industry norm.
Budget allocations further reflect the growing burden of KYC compliance. On average, KYC processes consume over 30% of compliance budgets, rising to 40% for the largest firms. This leaves little room for investment in critical areas like technology upgrades or talent acquisition, creating a cycle of inefficiency and financial strain.
Navigating Regulatory Complexity
Regulatory changes are a significant driver of KYC costs. According to the survey, 77% of firms reported that their systems lack the flexibility to adapt to evolving regulatory requirements, leaving them exposed to compliance risks. As one panelist observed, “Changes in regulations present an opportunity for transformation, but rigid systems and processes make it difficult for firms to respond effectively.”
Recent regulatory developments, such as the EU’s enhanced AML measures and the US Corporate Transparency Act, require precise implementation to avoid costly missteps. This adds complexity and strains already limited resources. “With fewer people available to do more work, firms must demonstrate to their teams that they have a clear plan to make their day-to-day work more efficient and meaningful,” a panelist explained.
To navigate this complexity, panellists highlighted the importance of leveraging advanced tools such as horizon scanning and process automation. These technologies augment human expertise, helping firms meet regulatory demands without overburdening their teams. Simplifying workflows through process mapping and centralizing data were also recommended as practical steps to improve efficiency. “The quickest wins lie in process mapping and understanding operational handoffs,” one expert noted.
Simplifying KYC Processes
Streamlining workflows and leveraging automation emerged as key strategies for addressing inefficiencies in KYC processes. Centralizing data and improving its accessibility across teams can reduce redundancies and speed up compliance tasks. “By streamlining workflows, firms can ensure that operational teams have a clear, consistent view of investor information,” the panel noted, emphasizing that this approach lowers costs and improves the investor experience.
Automation, even at a basic level, offers immediate benefits. Rule-based systems and machine learning (ML) tools can address repetitive tasks, such as normalizing data and flagging anomalies, freeing up resources for higher-value activities. “Before jumping into generative AI (GenAI), there’s a lot of automation opportunity with machine learning,” one panelist remarked, highlighting ML as a practical solution for enhancing efficiency.
The panel also stressed that transparency is both a cost-saving measure and a competitive differentiator. Clear communication with investors during onboarding and compliance checks can transform pain points into opportunities for building trust. “Transparency reduces friction—clients need to see their progress in real time,” one expert explained. By integrating transparency and automation, firms can simplify their workflows while creating a positive investor experience.
Outdated KYC processes are more than just a compliance challenge—they are a business risk that impacts investor trust, operational efficiency, and profitability. By addressing inefficiencies at their core, leveraging automation, and improving transparency, asset managers can not only reduce costs but also enhance investor satisfaction and position themselves as leaders in the competitive financial landscape. The time to act is now, as firms that fail to modernize risk being left behind in an increasingly demanding regulatory environment.
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