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KYC CLM TRANSFORMATION

The 3 biggest barriers to KYC/CLM efficiency

Matthew Neill
Author

Matthew Neill

Matt Neill, Co-founder and Partner at BeyondFS Matt began his career at Deloitte and gained further...

Over the last decade financial institutions have invested £millions in KYC and CLM technology solutions. But while this investment has generally led to some level of control, oversight and risk management, in most cases, new platforms have failed to move the needle when it comes to efficiency. 

To combat this issue (writes BeyondFS Co-Founder and Partner, Matt Neill) firms are turning to yet more technology. One recent KPMG survey of corporate and investment banking (CIB) providers showed that 61% are now exploring new platforms and generative AI as potential solutions to these problems. 

As tempting as it is to view tech as the solution, at BeyondFS we know that achieving efficiencies in KYC and CLM functions requires more fundamental changes. Most of the time, the barriers preventing progress can be traced back to three areas: data, processes and culture.

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Improving data quality and the shift to pKYC

Many firms are sitting on a mountain of data. But this information can’t be fully harnessed without standardisation, and so automated tools struggle to function effectively. 

Fortunately, the Financial Markets Standards Board (FMSB) is working on a new finalised ‘Standard for Client Onboarding: Documentation and Processes’, set to be published imminently. A draft was released in February 2024, developed in partnership with member firms and the Bank of England. It proposes a common ‘base set’ of data requirements across the industry, with room for firms to customise as needed. The aspiration is to establish a ‘baseline’ standard that not only regulators in the UK will accept, but in considering the requirements of other jurisdictions, one that other regulators around the world can too. 

When data quality is in place, AI can take centre stage. We’ve all heard the grand promises of artificial intelligence, and with the right data foundations, firms can begin to deploy AI thoughtfully, zeroing in on areas where it truly delivers value, such as in transaction monitoring and screening. 

At the same time, organisations need to move to a more dynamic view of their customers to manage risk effectively. Perpetual KYC, or pKYC, moves firms beyond a static, snapshot-based view of customers at onboarding and at periodic reviews, and instead provides a dynamic profile that evolves in real time as fresh data emerges. Some firms have started implementing pKYC through ongoing screening, particularly with adverse and negative media screening, and by integrating transactional monitoring into their risk assessments. 

The hype of Perpetual KYC from a few years ago means that expectations have always been high. The reality of pKYC has been that very few have started this journey in a meaningful way. For instance, few organisations have fully integrated transaction analysis into their risk assessments. Data has been the biggest blocker to progress, while siloed functions and technology platforms have also contributed. 

As we move towards a second generation of KYC and CLM solutions there’s an opportunity to realise greater benefits from pKYC through better quality data, integrated risk assessments and integrated technology platforms. Despite greater levels of automation and use of AI, people will still sit at the heart of the process, both from an operational and risk management perspective. For the time being, these processes will still require expert human input.  

Redesigning end-to-end processes

Many firms have begun to take a fresh look at their operating models, embarking on an overhaul of KYC and CLM processes. The aim is to remove friction and achieve end-to-end process standardisation, from the first steps of document collection to verification and ongoing reviews, putting in place a global policy framework with room for regional adaptations. 

Without removing the friction within today’s processes, teams run the risk of falling short on critical risk management requirements. This isn’t just speculation; ongoing Section 166 enforcement actions speak volumes. 

Most importantly, there cannot be any ambiguity when assessing customer risk profiles. For AI and automation to work effectively, the process must be airtight, with each step laid out plainly and precisely. 

Cultivating a culture of change

All too often, there’s a cultural resistance to change. Automation is seen as too disruptive, with people sticking to processes they know and trust. Without decisive leadership, this reluctance only hardens. A ‘throw more people at the problem’ mentality creeps in, a recipe for inefficiency. 

Without good change management, nervousness over long-term strategic decisions leads to a patchwork of short-term fixes. These accumulate over time, creating fragmented processes and silos across regions. 

To combat these issues, investment in leadership and culture change is non-negotiable, but training is also essential. Bringing in new technology requires not just enthusiasm but a shared understanding of what’s required to make it work smoothly, without the friction of misaligned teams. 

There are many organisations who have spent years trying to get their current models stable. Most understand that there are significant areas to improve though as they look to the future. Data quality, shifting to a more real-time view of risk and pKYC, automating more processes, improving efficiency, and improving customer service. The promise of AI and now GenAI means that getting your foundations right is ever more critical. Meanwhile, KYC and CLM leaders know they can’t take their eyes off BAU, evolving regulatory requirements and increasing regulatory scrutiny. 

The next few years will be critical as more firms take on all of these challenges. Those that successfully build these foundations will be positioned to lead in a rapidly evolving KYC/CLM landscape. 

Are you wrestling with these questions within your organisation? Talk to our expert consultants at BeyondFS to learn how we can help guide you through the shift to automation and AI in KYC/CLM. 

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