By Nick Ford, Head of Alliances at encompass, and Matt Neill, Managing Director at Optechs.
Since the financial crisis more than a decade ago, there has been a huge focus on Know Your Customer (KYC) and Anti-Money Laundering (AML) from global regulators, resulting in a stream of regulation as well as more than $23 billion in fines relating to non-compliance.
Despite increased spending and effort by financial institutions, getting on top of KYC and AML remains a challenge.
While high on the agenda for all financial institutions, there remains pressure to reduce the burden of compliance. At the same time, there is also a need to improve the quality and speed of onboarding to support better customer experience and revenue generation.
New RegTech vendors have spotted an opportunity in the market and are seeking to tackle some of the complex challenges that exist in KYC and AML compliance. These providers have the potential to provide significant benefits to banks by focusing on solving cross-industry issues.
Automation of KYC is one such area that has significant focus from RegTechs. Financial institutions are naturally hesitant to buy into the ‘hype’ surrounding new technologies such as Intelligent Process Automation (IPA), Natural Language Processing (NLP) and Artificial Intelligence (AI) but the benefits are consistently being proven.
In time-based studies comparing the automated process versus a financial institution’s current process, encompass completed the KYC discovery process on average eight times faster than a senior KYC analyst.
The challenges
While there can be no denying that there is now a greater global understanding of the importance and benefits of using automation technologies as part of a robust KYC and AML programme, some organisations, particularly in the banking sector, have struggled to adopt these new technologies in a way that unlocks their full potential.
There are numerous reasons for this, including:
- Other organisational priorities, both tactical and strategic in nature, as well as the many other demands that take up already limited resources
- The belief held by some key stakeholders that banks can both build and critically, maintain bespoke technology solutions themselves
- The perception that RegTechs lack suitable ‘credentials’, history, or experience
There has, however, been a noticeable change in industry attitudes in recent times. Falling profits are forcing cost-cutting measures and most institutions are now clear that the current manual AML and KYC processes relied on to date are simply not sustainable.
As financial institutions look to the future, where requirements are only going to increase, they need scalable solutions to help them meet the demand.
The solutions
There are several factors that must be considered when looking to maximise the benefit of KYC automation, with some key points to remember being;
Understand the problem: It is crucial to be able to provide solid answers to the question; “what problem(s) are we trying to solve?” This means understanding the problem in detail and developing business requirements, as well as measuring the current process. You must also ensure there is a clear strategy in place for addressing challenges.
Design for the future: The temptation when working with automation providers is to simply look at current process and ask “can you automate this process?” This misses the opportunity for banks to review what they have been doing and ask “can we do this better?” Working with automation providers presents an opportunity to review old processes and procedures and challenge existing ways of thinking. Moving to more technology-driven processes necessitates a change of mindset from some historical ways of working. Banks should try to adopt a transformation mindset when building automation into their KYC processes and embrace the benefits that technology can bring.
Collaborate, don’t mandate: In helping design for the future, engaging and collaborating with your chosen automation partner is critical. Firstly, the automation partner is likely to have experience across multiple banks and will be able to bring some ‘best practice’ to bear. Secondly, adapting your process to the partner process (which should be configurable) ensures your process will be better supported in the future and more cost effective. In requiring large customisations to a third party solution, the bank is creating an expensive, bespoke solution that needs to be maintained individually for years to come.
Get everyone onboard: In adopting automation as part of a holistic change, you need to make sure you are treating this as a comprehensive change programme. All departments need to be onboard and understand the part they play in implementing this change in the best way possible.
Improvement is critical: It is important that banks do not assume that their automation journey is complete following the initial adoption of automation technology. There is a need to commit to and invest in continual improvement. This means working with the chosen automation partner to develop a joint roadmap and ensure a close working relationship on an ongoing basis. This is critical to the success of the partnership, which shouldn’t be judged after the initial implementation, but over a multi-year period.
In order to maximise the benefits of KYC automation, it must be treated like any other significant change programme, ensuring commitment across the organisation. It’s also important to remember that, when embarking on a partnership with a third party, there are some considerations that must be taken into account, such as working collaboratively, aligning processes where possible, and commitment to continual improvement.
In implementing a KYC automation solution, banks have the opportunity to achieve significant benefits through increased speed and accuracy, but there are also significant risks if not approached in a planned, committed manner.
Find out more about how to maximise the potential of automation in this resource, developed by encompass and OpTechs.
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