Truly knowing who your clients are can prove challenging, particularly for larger organisations with many different departments and siloed processes.
Firms must balance financial crime risk, compliance and customer experience within an ever-changing regulatory environment. Please see the six most common barriers to effective (KYC) client onboarding.
The balance between freedom and direction
Ultimately, the perspectives of each side need to come to alignment on the balance between freedom and direction. RBA is an evolving concept in a dynamic industry and these apparently disorganised attitudes on either side are unlikely ever to be fully resolved. However, it is valuable for all participants to engage regularly and try to map a consistent understanding aligned with the shared objective of a well-functioning market, resistant to abuse by criminality.
With the 6AMLD due to take effect in December 2020, those who are lagging behind now will have an even steeper mountain to climb if no action is taken soon.
5th Anti-Money Laundering Directive
The Fifth Anti-Money Laundering Directive (5MLD) came into force on January 10th 2020 and it builds on the regulatory regime applied under its predecessor, 4 AMLD. Download 5th Anti-Money Laundering Directive (5th AMLD) Summary Guide.
When looking at your compliance system, it’s also important to understand where the information is coming from. You may have multiple proofs of address for a single person, but if the underlying source is the same, then that only constitutes one source. If you verify an identity document, have you relied on a certified copy of an original document from sources unknown, have you verified the machine-readable zone, or has an expert-review looking for detailed security features? All approaches are valid in certain scenarios and your approach may need to vary depending on the risk of that particular customer. A UK citizen depositing £300 may require a different approach from a non-EU citizen depositing £500,000. It is important to come up with an approach that takes into account the information that you know about your customer and can be tailored to handle both cases without excessive friction.
Poor amber management
Amber management is the term that we give to all those customer applications that have been flagged for review and need additional due diligence to get them through the onboarding system. They may only be 10% of cases, but they eat up the vast majority of your staff time and cost. By carefully designing an automated system that reflects your specific business risks, you can help to minimise the number of “ambers”. This will ensure that you only receive alerts on the issues that really matter – saving you time whilst increasing the chance that your team will spot the bad actors.
KYC verification is often performed by many different teams at different points within the customer journey. For example, the sales team may be involved in completing initial onboarding to open a client’s account, a separate payment team may need to verify KYC prior to any transaction and the compliance team may need to verify approving changes to standing data. Some firms have not integrated these separate KYC checks into a single system, and so are missing out on the opportunity to improve operational efficiency of their compliance processes. We know of one customer who cut their business onboarding time from 2 weeks, to 1 day by combining information between different teams.
Automation vs manual
Automation is essential, but it is not the only answer. The important thing is to automate what can be automated, and to highlight issues so that your manual team can be effective. If the team sees 1000 possible sanction matches a day, and they are all false positives, the chance of them missing the one genuine ‘hit’ is reduced. If they are spending all their time checking that the details on an identity document match the supplied name and date of birth, they are not focussing on spotting the one fake identity document. However, even with machine learning, a computer can only go so far – some things just need a human. The best systems combine the latest digital technology with experienced humans.
After a few years of operation, many firms will end up with customer records in multiple different systems, and verified to different standards, giving problems with both compliance and record management. At some stage, the legacy systems will need to be decommissioned and all the data transferred to the latest system, and records brought up to the latest standards. The temptation is to restrict costs, by leaving data on the legacy system, but this just builds up a compliance issue for the future.
As regulation becomes ever tighter and wide-ranging, electronic customer identification becomes the preferred method (if not yet mandated) for client onboarding. Continuing to meet your customer’s expectations is becoming an increasing challenge, digital transformation of compliance and client onboarding processes will be the only way for your company to remain competitive.
Instead of using the different siloed solutions to complete Know Your Customer verification and managing many different data sets, I would recommend a single-point solution where all client onboarding data can be accessed by the relevant team members at different parts of the client journey. This improves the efficiency of the collection, verification and storing of client documents and data, whilst making it easier for auditing purposes. This means your clients can experience a friction-free onboarding experience smoothly, processing of requests are completed faster and their transactions are approved with less disruption which in turn will reduce abandonment whilst increasing your sales and revenue.
If you want to learn more on how we can digitally transform your compliance; client onboarding and monitoring process visit www.northrow.com or email firstname.lastname@example.org.