Digital Client Passport vs. Financial Crime: Collaboration for Success

The impact of financial crime has now become a focus of policymakers at the highest levels, as evidenced by recent articles related to the World Economic Forum (WEF) Annual Meeting at Davos and a speech by Andrew Bailey, Chief Executive of the Financial Conduct Authority (FCA). If institutional banks do not comply with Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations, they face fines, reputational damage and even individual prosecution. Sanctions compliance is not an easy task, however, and for banks this translates into increased operational expenditure and higher costs of sales per customer.

Essential Evolution

Stringent KYC/AML regulations mean that financial institutions need to evolve their back-office systems. Not only must banks improve operational processes due to regulatory pressure, they must also respond to growing customer demand for increased speed and efficiency, particularly in relation to onboarding.

In the course of investigating transactions flagged by automated sanctions or AML systems, banks have been forced to make and respond to a growing number of “Requests for additional information” (RAIs). This involves making and receiving telephone calls, emails and other manual processes, requiring a costly increase in headcount and augmenting a firm’s operational risk because of the potential room for errors that can result from non-automated processes.

Further, because the documents required for KYC/AML compliance are still either paper-based or manually processed, delays can occur with onboarding systems dealing with non-automated checks. Duplication of required due diligence not only can transpire across different institutions, but often times within a single firm.

Passport Proposal

Technological solutions are available, however, to help the industry address both regulatory challenges and the improvement of back-office systems. A digital client passport for financial services is one such solution, ideal for mitigating both the operational risk and time-to-market elements that banks face.

The core principle of the financial services digital client passport is to identify its owner based on digitally accessible data, made available to financial institutions whenever the identity and details of a person or counterparty need to be checked and verified. It would streamline customer onboarding processes for financial institutions by providing the ability to securely access all client details to ensure they remain compliant and help mitigate risk. The data, accessible from a single, secured digital source, would be updated as and when events change, without the need for customers and clients to contact each financial service provider individually.

Providers of dynamic digital client passport solutions have the ability to access a comprehensive range of global information for detailed reports on people, companies and documents, as well as having intelligence-sharing agreements with a number of law enforcement agencies. This breadth of data provides real-time intelligence via a single, easily integrated API. It also helps to address the complexity of onboarding and monitoring customers and creates a dynamic digital client passport on any counterparty, encompassing all components of KYC/AML data capture. Client preferences around investment (such as ethical or green investing) can also be applied, as well as solutions to meet any regulatory change or nationality/territorial restrictions on individuals or companies.

Collaboration Continued

There is no way to capitalize on, or monetize, regulation, other than by speed to market – it will always be a cost. The aim is to reduce that cost by implementing efficiencies derived from both automation and collaboration. Participants at Davos recognized that advances in technology can quickly and efficiently help identify patterns indicating potential crime. They called for both public and private sector organizations to work together to exchange information across borders in order to make an impact on financial crime and the resulting societal harm it inflicts.

An automated solution produced by industry collaboration, such as a digital client passport, could answer such a call, as well as producing additional benefits, including mitigation of risk, the driving of efficiencies, and provision of customer service in a more-timely manner. Participants of the financial services industry need to press on with their tentative first steps towards collaboration, establishing game-changing digital client lifecycle management for the benefit of all.

Paul Murphy, Chief Commercial Officer, NorthRow

The Article Originally Appeared on the Tabb Forum Digital Client Passport vs. Financial Crime: Collaboration for Success (06 April 2018) .