Keep Your Clients’ Risk Status on Your Radar
Out of crisis comes innovation – digital onboarding and ongoing KYC monitoring
The need for a strong onboarding process has never been more important and there is no question that the digital transformation of customer onboarding has been accelerated over the last year. Businesses have brought forward the need for online transaction-based activity rather than in-person face-to-face.
Business leaders fast-tracked transformation projects in 2020 to keep their organisation viable. The demand for remote identity verification solutions soared, as regulated firms looked to serve their clients, whilst ensuring Know Your Customer compliance obligations were met.
By utilising technologies such as biometric facial recognition, liveness checks and document verification, businesses were able to digitally onboard their clients, whilst ensuring their identity was genuine. However, without focused attention on building a quality relationship from the outset, revenue and loyalty are in jeopardy, so onboarding shouldn’t be seen as a tick box exercise and discarded once initial sign up is complete.
Front end change is just the tip of the compliance iceberg
The ‘tip of the iceberg’ cliche is so relevant when it comes to describing compliance. Know Your Customer does not stop at the point of onboarding, it remains vital to understand your customer’s risk status throughout the client lifecycle and due diligence requirements.
With rising levels of fraud and money laundering, as well as increased scrutiny from the regulators, understanding your customers changing risk status should be high on the agenda and accelerated in the same way that digital onboarding has been.
The customer you have today may no longer be the customer you originally signed up
Over the customer lifecycle, there will be continuous changes in your customers’ risk profile, for example, company structures, beneficial ownerships, directorships and more importantly, their financial stability.
Your clients’ risk status changes and the pandemic has added to the frequency of these changes at unparalleled speed. Key changes include:
- Increase of UK company insolvencies for the year rose to 19,654 by the end of December 2020
- Expectations that the numbers will rise further once we emerge from the latest lockdown and government support schemes are withdrawn
- Rise in changes in the company ownerships. During turbulent time, many companies take on additional directors in order to survive, grow their businesses or raise money
- Increasing levels of Money Laundering activities. Unfortunately, during all economic downturns, there is often a correlation of an increase of financial crime as criminal look to exploit legitimate business in times of crisis
For organisations to stay ahead, ongoing KYC monitoring of client risk status will be critical in 2021.
Despite the frequency and volume of changing risk profiles, many firms are still relying on cumbersome manual systems to manage the monitoring of their clients. This often results in the risk being overlooked by human error, bulk remediation projects further down the line and a huge drain on already limited compliance resources. This also has the potential for increased risk exposure and the potential for reputational damage.
How often and what should you monitor your clients for?
In our experience businesses should continually review the risk their clients pose, or a minimum of every 6 – 36 months depending on their appetite or approach to risk.
However, with such rapid changes in the market, you need proactive monitoring solutions. You need to know about any changes as soon as they happen so that you can take immediate and appropriate action. It is no longer sufficient to monitoring client risk every 6 months or a year, or even three years and hope that nothing significant has changed in the interim.
With a digital solution, tailored to the individual requirements of the business, ongoing monitoring is made more efficient with more frequent monitoring easily achieved with the following areas covered:-
- Sanction Monitoring
- Ultimate Beneficial Owner
- Company monitoring
- Adverse Media checks, lists and monitoring
Challenges of manual client ongoing KYC monitoring
Businesses working with manual systems are at a disadvantage when handling their ongoing monitoring process, given the scale of the task. Ongoing really does mean ongoing, and manual systems restrict flexibility. Compliance teams with limited resources may find themselves struggling to prioritise, especially as front-line business teams heap on the pressure to onboard new customers quickly.
As compliance teams are tasked to do more with less, the use of technology frees up resources for other business-critical work, streamlining the workflow, reducing inefficiencies and tipping the balance back to profitability.
Why you need an automated ongoing KYC monitoring solution
Automated, monitoring solutions are enabling firms to dramatically streamline and enhance KYC compliance on an ongoing basis. As technological and analytics capabilities grow, regulators are challenging the traditional cyclical periodic-based view of the frequency of KYC updates. Daily screening, ongoing monitoring and improvements in transaction monitoring mean that firms can execute ‘continuous KYC’ based on trigger events and safeguard their business whilst achieving compliance with the regulators.
Benefits of automated client monitoring
Where manual systems restrict flexibility, automation gives the ability to choose the frequency of verification as it automatically and seamlessly screens counterparties against all relevant sources and can provide updates in real-time. This enables a higher number of real-time verifications throughout the year, rather than an annual screening which may leave your business exposed. By combining the highest quality of data with our leading coverage of PEPs, Sanctions and Adverse Media, you can remain compliant with Anti Money Laundering regulation. It also provides:-
Superior customer and staff experience
By leveraging all existing customer data and external information, firms can reduce compliance touch points with the customer during onboarding and beyond. At the same time, dynamic KYC enables more focused customer engagement by enabling bespoke experiences.
Precise risk assessment
Better data capture and quality, will support faster and more accurate risk management. Firms are clustering and consolidating research through advanced machine learning and reducing false positives with intelligent segmentation. In this way, they are building more robust risk profiles and helping to discover customers’ true profiles, including ultimate beneficial ownership.
Improved customer experience
KYC can be repetitive and often cause customers to switch brands. With continuous KYC you can gain more data on customer needs to fuel genuine conversations.
Some firms are reimagining the approach and methodologies driving risk rating assessments, using the new data to expand risk rating categories and enhance granularity in customer segmentation, products and services. Others are pursuing ‘dynamic risk assessment’ methodologies, where the customer risk rating is constantly monitored rather than within set periodic review cycles.
As we experience these challenging times, we all need to work together to protect our businesses and to hold the frontline against criminals wanting to profit from the disruption.
You can’t afford to leave anything to chance. Accelerating the digital automation for your client monitoring will not only improve your compliance with relevant regulations, but it will also deliver outstanding efficiencies in your processes.
By implementing the changes now, you can be confident not just for these challenging times but also in the future and will allow you to focus on growing your business rather than spending valuable resources on manual compliance processes
To learn more about NorthRow’s market-leading customisable monitoring solution that automatically alerts you to any counterparty risk profile changes do not hesitate to get in touch or book a meeting.