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How will KYC evolve in 2021?

KYC remains a significant challenge for financial institutions, despite the considerable investments made over the past years. KYC and AML related fines are still hitting the billions ($18.4 billion in 2019) and annual spend on KYC and compliance costs is into the hundreds of millions of dollars for larger institutions. Pressure from the top of the organisation is mounting on compliance teams to prevent high-profile failures, such as those highlighted by the leak of the FinCEN files.

 

Areas of focus
Doing more with less

Today’s challenge therefore is to do more with less. While cost reduction is key, there are still three core functions that must be delivered. As a foundational step, KYC obligations must be fulfilled to reduce risks of fines, future reputational damage and to satisfy environmental, social, and corporate governance (ESG) responsibilities. Secondly, KYC should be conducted as efficiently as possible, to minimize cost, maximise speed and accelerate time to revenue. Finally, it must facilitate great customer service through a fast and smooth onboarding process, easy access to products and services across the organisation, and simple ways to update and maintain KYC information on an ongoing basis.

In 2018, Oliver Wyman wrote this article and identified six areas of focus to achieve ‘next generation’ KYC. Here we explore how relevant these areas are today and how they need to further evolve in 2021.

Relevancy today
What has changed?

CONSIDER THE CUSTOMER EXPERIENCE by leveraging digital strategies such as client lifecycle management (CLM) workflows and customer portals to reduce inefficiencies and shorten the timeframe. Further improvements can be made by moving towards ‘perpetual’ or ‘continuous’ KYC, in which customer information is updated based on triggers indicating out-of-date information, rather than a specific amount of elapsed time.

Relevance today: High. While many financial institutions are already in the process of implementing customer portals and CLM systems, perpetual KYC still seems to be more of an ambition. A recent poll also highlighted that 41% of respondents still felt that ‘fear of regulatory fines’ was the main strategic driver, emphasising that the customer is not always at the heart of KYC changes. This is understandable given the $18.4 billion of KYC and AML related fines in 2019 and the $5.6 billion of fines from Jan to July in 2020.

OPTIMISE PROCEDURES which have often been written in such a way as to pass regulatory scrutiny, rather than specifically for Operations staff. Teams have had to rely on additional guidance, experience and specialist support to execute their role, invariable resulting in high errors rates and re-work. As referenced in the Oliver Wyman report, re-writing procedures to provide greater clarity and concise guidance can result in error rate reduction in excess of 50 percent.

Relevance today: High. A key challenge with KYC is that it should never simply be a procedural, check-box exercise –  judgement and experience will always be required. As well as making your procedures more concise, organisations should also leverage technology to support procedural execution through rules, workflows, visualisation and case management.

RATIONALISE CUSTOMER DATA because the master customer record lies at the heart of KYC, and as a result, needs to be highly structured, easily accessible and contain all the necessary information. The issue is that many KYC systems have been built up over time, using a combination of vendor and in-house solutions, which are not well integrated or aligned, each having their own view on data management and potentially different taxonomies. By taking a more federated approach to data management, it is possible to reduce data complexity and rationalise platforms. This helps to both reduce cost and create value in other areas that leverage KYC data.

Relevance today: Very high. Data is the cornerstone of any KYC process and in creating a single view of the customer, it is possible to drive simplification and rationalisation across your KYC environment. Most organisations still operate with KYC data sitting in multiple systems and even across multiple records, creating a huge challenge for driving efficiencies or greater customer focus. This will remain a top priority for any organisation looking to transform their KYC operation.

DRIVE AUTOMATION ACROSS THE PROCESS to help reduce the reliance on manual processes and costs by including automation of data sourcing, data extraction, scheduling, orchestration, quality review, and summary generation.

Relevance today: Very high. While big strides have been made across many organisations in the area of automation, there are still huge opportunities to leverage technology and data to automate KYC, improve efficiency and reduce costs.  The move towards a more automated perpetual KYC will be a key theme of 2021.

OPTIMISE THE RESOURCE POOL to reduce costs by shifting to lower cost locations. However, this inevitably means a loss of experience, at least initially. It is key to recognise that different capabilities are required and adjust your processes to accommodate this new set of resources – by offering greater levels of support and routing work – to ensure efficiencies are optimised.

Relevance today: Medium. This is less critical today than it was two to three years ago with most organisations already on their first wave of KYC offshoring or outsourcing strategies. Interestingly, however, is that some organisations have started to bring back some of their key operational functions back to lower cost locations onshore – a trend which we’re expecting to see grow over the next few years.

MEASURE EVERYTHING simply because ‘what gets measured gets done’. With complex processes, such as KYC, there are a vast number of metrics that could be measured and potentially improved. Enhancing any part of the process, could result in significant productivity or efficiency gains across thousands of clients or large numbers of resources, as such it is critical to select the right levers to pull. Key performance indicators could include: case completion time, productivity per team / person, customer touch-points, case error rate, effort per record or number and severity of audit findings.

Relevance today: High. While a general improvement in the underlying technology allows for the better capture of information, most organisations continue to struggle to produce performance metrics on a consistent basis. Moreover, where metrics are available, they are often not utilised to the full effect to drive decision-making and deliver transformational change.

What will happen next in 2021
Re-organisaton of teams, processes
and customer view

THREE ADDITIONAL AREAS OF FOCUS

We believe that there are three additional KYC improvement themes that will be critical in 2021, driven by the rise of new technology and  solutions, and the need to achieve operational efficiencies and reduce costs.

  1. ORGANISE FOR MAXIMUM EFFICIENCY

As budgetary pressures rise, the need to ‘do more with less’ becomes ever more critical for the majority of organisations. Many will be looking to organise their onboarding and KYC operations functions in a more customer-centric way, consolidating teams from across business lines into a more centralised team. This provides the basis for the consolidation of duplicative systems and customer portals, the standardisation of common processes, and critically, the ability for a single view of the customer across the organisation.

  1. RE-DESIGN ONBOARDING AND REFRESH PROCESSES WITH AUTOMATION

The huge advances in the ability to automatically collect large amounts of data in real-time and monitor change will enable significant improvements to be made to the traditional KYC process. For example, the ability to automate the collection of company information, company structures, shareholder information and UBOs, means that the information no longer needs to requested from the customer and the process can be expedited.

In addition, the ability to automatically monitor client information for change transform the way organisations conduct KYC refresh reviews. The traditional process of ‘refreshing’ KYC information on a periodic basis, can move towards a genuine continuous form of monitoring. Client outreach, of course, won’t be replaced completely but the above changes will significantly reduce the burden on KYC operations teams.

  1. DEVELOP A CONTEXTUAL VIEW OF YOUR CLIENT

The challenge for many organisations with developing a single view of their client, is that data sits in different silos – from 3rd party data sources to direct information from the client, to transaction data (for AML purposes). Advances in data management and data visualisation now enable organisations to not only bring together data more easily from multiple sources, but to also support a more contextual, network based view of their customer through the addition of transaction data and connections between clients. Something which was simply not possible until now.

This presents a huge opportunity for KYC and AML teams to conduct deeper due diligence on their clients with ease and reduced risks. Meanwhile, this approach can also provide greater scope to cross sell clients offer your clients other relevant products and services.

 

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