6 Common Barriers to Effective (KYC) Client Onboarding

After working with several regulated firms to help manage their Know Your Customer (KYC) client onboarding and monitoring processes, I have created a list of the six most common barriers to effective KYC onboarding.

Posted on April 2, 2020
Written by Adam Holden


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

Poor scoring

When assessing risk, the first question that you need to consider is, “what constitutes a risk to my business?”  Clearly a sanctioned person is not acceptable, but what about a Tier 2 politically exposed person, a disqualified director or someone with a poor credit rating? If you don’t offer credit, a poor credit rating may be of little consequence.  The important thing is to understand the risk that each poses to your business and to configure your systems to ensure that you are alerted to the risks that matter to your business.

Verification sources

client suitability

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.

Internal barriers

client onboarding

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.


Legacy systems

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. 

In summary 

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 sales@northrow.com.