The continual changes to the regulatory landscape and pressures on internal resource can often lead to backlogs in Customer Due Diligence (CDD) refresh, and risk delays in onboarding new customers. So how can FIs overcome some of the common challenges involved with CDD remediation? Here are some factors that can help improve the CDD remediations process.
Approach
Steps to consider
Consider the number of use cases/complexity of the task
There are multiple factors that will impact the number of use cases experienced during a remediation. Most FIs will need to consider several factors including:
- Number of legal entities/jurisdictions to be covered for the FI itself;
- Number of client types;
- Number of legal entity structures for clients (e.g. public/private/trusts/partnerships); and
- Number of Products combinations
As soon as two of these factors is greater than 1, the number of use cases to be considered is into double digits. In many cases, volume of permutations can be significant and understanding the complexity upfront allows for appropriate plans to be put in place.
Summarise the activity
It is essential that senior management understand the challenge, the risk being faced, what needs to be done, and who is going to do it. Only once this has been fully and appropriately communicated to them can they provide the support required to complete the task.
It is critical that the remediation lead takes responsibility for ensuring management is fully briefed on the overall objective, that they understand the level of complexity (see point 1) and the planned rate of case completion.
Generate a method
The method may be similar to the existing client onboarding approach but unless the requirement is a complete re-validation of the entire population, the method should be more targeted in nature to tackle the specific requirement for a sub-set of the population. It’s important to consider what constitutes a ‘unit of work’ – will this be owned by the same person and team throughout? How will you show a unit has passed each stage? How will a unit be tracked?
If the approach requires team members to process individual cases to completion we often find that an aggressive, yet achievable weekly target promotes inter-team competition and increases the pace of case closures. It can be very helpful to consider tranches or sprints, setting off groups of clients at intervals to stagger the workload.
Be clear on responsibilities
This is an important factor for all remediations, however, particular care is required for CDD remediations. Individuals handling cases may be the closest to the specific detail, however, it can be easy for team members to become absorbed in a single case, significantly inhibiting progress against the volume target. Ensure that there is a structured approach for escalating and resolving issues as they come up so they can be closed out in the most efficient manner and the team can maintain the pace.
Ensure the existing process and technology can support the remediation
By their very nature, remediations often require a rapid response – this is often too quick to allow a solution to be defined within strategic technology . It is often necessary to identify which elements of the existing infrastructure can be used to support the effort (e.g. client outreach or public source information collection)? Balance this against the likely need to process cases in bulk and whether the functionality provided is the most efficient mechanism. The most effective approach will vary according to the unique circumstances of each FI – this is an area to consult with key stakeholders to ensure client experience, operational and compliance risk, and timeliness are all appropriately considered.
Focus on the detail
Once a ‘unit of work’ has been agreed, there must be a mechanism to track the status at each stage. Statuses must be clear, comprehensive and mutually exclusive. Keep statuses simple and have as few as possible. Use flags to highlight stages requiring more granular detail. For example, a case may have a status of ‘In Progress’ but with multiple flags: ‘In QA’ and ‘Query raised’.
Statuses and flags are extremely valuable for progress tracking and reporting, however, be sure to validate and correct illogical combinations/conflicting information.
Be clear on expectations
CDD remediation can become very complex, and complexity can slow progress. Ensure all parties are clear on what is expected of them and their targets. In line with this, consider whether any additional training is required. For example, is the expectation that a (new) team member will need to communicate with clients where they would not usually be expected to do so? If so, what do they need to know to ensure they meet the relevant standards and expectations?
Document and articulate all assumptions
The high pace of remediation demands complete clarity on approach and progress across all parts of the programme. Documenting and sharing key assumptions helps minimise debate on the scope/approach/ownership etc once the work is in progress, or more critically, coming to a close. It can be difficult to course correct when the remediation is moving at pace, especially if a large or dispersed team is involved. Capturing assumptions as early as possible can alleviate pressure in this area.
KYC/CDD remediations should follow the same best practices as other remedial initiatives, however, the often unanticipated complexity of use cases/client scenarios, and the introduction of a ‘risk based approach’ (as opposed to a definitive outcome as with many other regulatory frameworks) can result in poor execution within organisations. Considering the key areas outlined above, and tackling challenges up front, can help organisations execute KYC/CDD remediations more easily.
