Adapting KYC Compliance to the Shifting Financial Landscape

KYC compliance in the financial sector constantly evolves to combat financial crimes like fraud and money laundering.

FREMONT, CA: Change is a constant in the world of Know Your Customer (KYC) compliance, a process vital for identifying customers when they open accounts and periodically over time. KYC is designed to safeguard banks and financial institutions against fraud, money laundering, corruption, and terrorist financing, and it must evolve to stay ahead of emerging financial crime tactics. Financial services institutions must adapt their KYC processes to comply with changing government regulations. However, these changes also bring opportunities. Forward-thinking banks that anticipate KYC shifts and proactively address them can reap benefits.

Due diligence for KYC now encompasses ESG (environmental, social, and corporate governance) considerations.

Expect increased scrutiny of businesses' behavior regarding the environment, including climate change, biodiversity, and other environmental issues, as well as social issues like diversity, equity, inclusion, and employee well-being. Use flexible business process workflows that are data-driven to include ESG considerations in your KYC due diligence processes. This allows you to adapt existing questionnaires and practices to include ESG requirements and parameters and integrate ESG-specific data into your reporting methodology.

Banks are already using tools for client screening in their AML initiatives. However, these tools frequently produce many false positives, accounting for more than 40 percent of AML alerts and costing banks over USD 3 billion annually to resolve. ML and AI algorithms can swiftly analyze vast amounts of data, more accurately detect fraud, and process alerts faster, eliminating manual and tedious tasks.

ML and AI also excel at capturing the latest trends and behaviors in money laundering activities. However, these algorithms require appropriate parameters to perform effectively. To make the most of ML and AI, train and test AI models using high-quality data, establish mechanisms to monitor and assess their performance, and set up procedures for addressing errors and biases. You can turn KYC from a cost center into a profit center by optimizing customer lifecycle management. By providing top-notch KYC experiences, you can use KYC as a competitive advantage to attract customers.

Streamlining access to data and integrating processes throughout your organization will reduce onboarding times and enhance customer satisfaction. Failing to maintain an up-to-date customer profile could mean missing out on crucial upselling and cross-selling opportunities. Gaining a comprehensive view of your customers through automated customer lifecycle management (CLM) allows for more effective marketing. You can offer the right products at the right time, such as after a business expansion or significant life event, ultimately providing more value to customers. Banks have long sought automated KYC with a single, comprehensive view of compliance risks and growth metrics. A holistic, real-time customer view enables better risk assessment, fraud detection, and upselling opportunities.

New data fabric technology, layered atop your existing systems and data sources, can orchestrate an end-to-end KYC workflow. This automation streamlines the process, accessing data from wherever it resides while retaining the familiar organizational structure recognized by regulators. Ensure that your workflows are agile to accommodate emerging regulations and risks.