The importance of KYC remediation cannot be underestimated. With regulation continuing apace many firms are sitting on outdated client data that can expose their business to reputational damage and commercial risk. Whilst KYC remediation is a necessary evil, it has traditionally been a compliance headache. In this blog, we explore how best to equip your business to deliver efficient KYC remediation projects that support compliance, sales and the business as a whole.

Know Your Customer (KYC) is the process of verifying your customer’s identity, usually using compliance solutions and screening software. The goal is to identify the clients that are most at risk of financial crime. Verifying the identity of someone you are doing business with is the purpose of KYC remediation. For the sake of protecting the company, it is crucial to gain sufficient information on clients to ensure they are not partaking in money laundering or other illegal activity. 

What is KYC remediation?

KYC remediation is the process of cleaning and updating your client’s data to ensure compliance with the latest regulations. Each customer’s assigned risk must continue to reflect the appropriate risk rating. The frequency of periodic reviews of your data will be reflected in your company’s approach and risk assessment. Still, it should generally fall within a 6 – 36-month cycle depending on the high, medium or low flag you allocate. An efficient KYC remediation process can significantly reduce your business risk whilst also creating an opportunity for you to understand better who your customers are and how best you can further serve them.

KYC Remediation projects have traditionally required a high level of investment in budget, resources and time; usually because of the over-reliance on historical manual processes and ‘paper’ trails. 

Seemingly simple remediation projects can quickly become complex once you factor in the collection and re-verification of international client data operating in multiple jurisdictions and where the data is held in different formats and platforms. For this reason, remediation is often placed on the back burner and is only actioned once a regulator comes to call.

In today’s changing business environment and increasing market volatility, the customer you have today may no longer be the customer you originally onboarded. For this reason, delivering efficient KYC remediation is critical to your business success.

KYC remediation drivers

KYC client lifecycle remediation is vitally important; it not only keeps your data clean, (or flags queries for further investigation) but also prevents the risk of financial penalties. Not that fine avoidance should be your primary KYC remediation driver. Other drivers include:-

• Delivering efficiency and operational savings
• Understanding your customer’s current situation so that you can offer appropriate products
• The retirement of legacy systems and improved customer experience
• Internal changes to the risk appetite of the business
• AML KYC Periodic Reviews
• Future-proofing your business against further changes in compliance legislation

Delaying a remediation project exposes your firm to a higher risk of aiding money laundering, fraud, or being caught out by the regulator for non-compliance which can have a detrimental effect on your brand and reputation.

However, KYC remediation isn’t all about avoiding pitfalls. By improving your client data and ensuring information is accurate, it enables you to support revenue-generating campaigns through upselling and cross-selling opportunities.

Effective KYC remediation process and logic

At NorthRow, we understand that KYC remediation can be complex. We have allocated 5 key steps to deliver an effective process to ensure timely delivery of your remediation requirements:

Step 1 – Identify outdated data and high-risk clients

The primary guiding principle for executing a successful KYC remediation program is for firms to focus on remediating the risk presented by the customers rather than every data point in the file. Not all customer data files will need to be remediated. It is much more efficient and effective for the organisation to identify areas of highest risk first and allocate the necessary resources and experience to these more complex out-of-date records.

Step 2 – Automate KYC remediation for cleaning data

Due to the sheer volume of client KYC data that needs to be remediated,  firms should invest in automated software solutions that can quickly segment customers against a high, medium and low-risk strategy.

With the NorthRow Regulatory Rules Engine, regulated businesses can remove much of the interpretation of the required obligations by applying rigorous logic to the available data.

Step 3 – Collect missing client identity data

Using a highly configurable API solution, the data can not only be segmented and cleansed, but gaps can also be plugged with consistent standards set to ensure all data is compliant. The automated cloud solution efficiently re-verifies your client’s data and documentation against multiple sources in far quicker time frames than outdated manual processes.

Step 4 – Add clean data to CRM

All data and documentation required to support the compliance process can be identified with the application of the rules logic and returned as ‘clean data’. The verified data can then be confidently used throughout the business, such as sales and marketing for remarketing and additional revenue opportunities.

Step 5 – Ongoing client monitoring

Specific automated alerts relevant to your business can be used to deliver a relevant risk-based approach to continuous monitoring to ensure the avoidance of more complex remediation and ongoing Customer Due Diligence and monitoring.

Avoiding future remediation headaches

Digitally transform legacy technology 

KYC remediation is often not seen as a revenue-generating activity, and for this reason, it has not had sufficient technology investment. Client data is often kept in multiple siloed legacy systems, which makes having a holistic view of a client impossible and creates a barrier for businesses when it comes to meeting regulatory compliance of the KYC lifecycle.

Using legacy systems and outdated manual remediation processes not only provides a haven for bad actors to take advantage of any gaps in your compliance processes but also dramatically increases overall KYC remediation project costs and prolongs the project delivery time.

By digitally transforming your compliance functions using scalable and secure cloud solutions, you can facilitate expanded remediation projects, seamlessly handling increasing volumes of client documentation and data into a single view of the relevant data and sources.

Invest in better onboarding solutions

The problems with KYC remediation programmes begin with a weak underlying onboarding process. The issues here include inadequate methods of obtaining and/ or maintaining records and multiple poor-quality data-capture systems. 

An initial investment in robust client due diligence processes from the very onset can avoid large-scale future remediation projects. The trick is to invest in onboarding tools that maximise data capture and identification without sacrificing client experience and to store the customer data in a single “golden source” so that you can respond quickly to any future changes in legislation or identified risks.

Digital client self-service verification solutions

For gathering hard-to-reach client data – utilising digital self-service solutions to allow your clients to update their own information and upload ID documents at their own convenience also greatly improves the efficiency of the remediation process. 

Client onboarding solutions such as NorthRow’s RemoteVerify solution allow clients to use their own smartphone to capture ID documents, facial-biometric data, address verification and more, improving the efficiency of your remediation process.

Invest in skilled people for enhanced due diligence

Skilled remediation resources are not easy to find, let alone retain. By providing your compliance teams with a digital solution the laborious repetitive tasks can be removed, allowing them to focus on using their skills and knowledge on areas that will ensure employee engagement and deliver complex remediation cases that require enhanced due diligence.

Why is a robust KYC remediation process important?

Know Your Customer is a critical part of anti-money laundering protocols. In a bid to reduce the risk and incidence of financial crime, financial institutions and regulated businesses must undertake a comprehensive checking and verification process for the entities with which it does business. As part of this process, meeting and continuing to adhere to the latest regulatory requirements is critical. KYC remediation ensures that each customer’s anti-money laundering risk is assessed in a timely manner and assigned risk ratings are updated based on the changes in KYC regulations.

Importantly, KYC is not a one-stop shop. Rather, it is an ongoing process that must be revisited at defined intervals depending on the level of risk deemed applicable to each individual client once onboarded.

Entities and individuals are fluid in nature, and something can change in a matter of hours. From minor administrative changes such as a change of address to more significant updates such as new directors, adverse media or a Politically Exposed Person (PEP) becoming involved in a business, active monitoring must take place on an ongoing basis to ensure continued compliance with anti-money laundering regulations throughout the entirety of the relationship with every designated organisation.

Due to this ever-changing and increasingly complex regulatory landscape, remediation is a critical part of KYC. This process involves cleaning and updating the information gathered during the initial client onboarding phase and ensures that businesses remain compliant with all the latest regulationss throughout the entirety of the relationship.

A failure to spot suspicious activity, illicit beneficiaries, anomalous transactions, criminal stakeholders or terrorist financing can land a business in very hot water. Companies that don’t undertake sufficiently comprehensive KYC checks and monitoring not only open themselves up to fraud but hefty fines for failing to comply with legislation, and the subsequent reputational risk that fraud and fines can bring.

In summary 

The regulatory pressure on the market to prevent money laundering and fraud will continue to rise. We have seen several hundred amendments to regulation since the global pandemic and anticipate that this will continue for years to come as fraudsters and money launderers find ways to circumvent existing technologies. Businesses will be continually under pressure to find solutions to stay ahead of those hoping to misuse their services. Investment in digital solutions will be a necessity as it will deliver more efficient KYC remediation and future-proof compliance functions not only now but well into the future.

At NorthRow, we have worked with leading Building Societies, Estate Agents, Payments firms and Wealth Managers to improve the efficiency of their KYC remediation projects, reducing resource costs, improving risk management processes and helping meet regulatory compliance obligations.

Get started with the NorthRow team today to learn more about how we can help you.

Last updated: Tuesday 5th March 2024