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Innovation for today’s KYC challenges

Charles Minutella
Charles Minutella
Head of Enhanced Due Diligence, Risk Refinitiv

Know Your Customer (KYC) remains a central focus for banks and financial institutions as they look to reduce onboarding costs, improve client experience and stay compliant. A Refinitiv webinar has examined the role of innovation and managed services in meeting today’s KYC challenges.

  1. KYC challenges for banks and financial institutions include poor client experience, a rising cost burden, and the risk of reputational damage from a compliance breach.
  2. A Refinitiv webinar — Evolution of KYC: From Cost Control to Innovation — has examined how technology including AI and machine learning is meeting today’s KYC challenges.
  3. Managed KYC services offer a dynamic combination of technology and strong subject matter that can be tailored to specific requirements, bringing human expertise into the mix.

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In today’s complex regulatory and political environment and with the ever-present threat of enforcement action, many banks and financial institutions (FIs) have adopted a more conservative approach to KYC than strictly required.

Combined with non-collaborative and differing KYC processes across the industry, this is contributing to significant client frustration levels.

Supporting this view, Refinitiv’s annual KYC survey revealed that US firms estimate 30 percent increase in client onboarding times over the next 12 months and 40 percent said they dealt with too many people at the bank during the KYC process.

Data quality also remains an issue. Many FIs struggle to access a single golden source of information that can enable them to develop a holistic view of each client.

As highlighted in our recent webinar — Evolution of KYC: From Cost Control to Innovation — these and other industry-wide KYC challenges are impacting FIs in three distinct ways:

  • Top-line impact

KYC challenges can constrain revenue generation. Fragmented operating models and inadequate workflow across different departments both contribute to lengthy onboarding times, which in turn lead to poor client experiences and even missed business opportunities, as well as contributing to low client retention rates.

  • Bottom-line impact

The burden of cost to meet and satisfy regulatory requirements can be significant. The inconsistent implementation of policy across different jurisdictions, coupled with ongoing regulatory changes, can lead to ambiguity, confusion, downtime and spiraling costs. Moreover, the resultant increase in spend does not appear to translate into a decrease in financial crime or better client satisfaction levels.

  • Impact on risk

KYC challenges impact risk, and this in turn impacts both revenue and costs. Reputational fallout as a result of a compliance breach can severely impact revenue generation, and regulatory failures can result in hefty fines and the need for further investment, both of which impact the bottom-line.

Innovation for today’s KYC challenges. Refinitiv's annual KYC survey

The evolution of KYC technology

Technology in the KYC space has been in a state of constant evolution over the last decade, passing through a number of phases. Traditional rules-based systems, such as name matching and keyword searches began to mature as analytics were added into the mix.

These old-school approaches, however, were focused on looking for information within structured data.

The next generation of KYC processes then began to employ robotics, for example, by automating routines and later still, semantic analysis (for example linguistics) that was able to analyze unstructured data.

More recently, AI and machine learning, often with cognitive abilities, have been widely employed to make sense of undefined data and to find patterns that pinpoint potential risk.

Innovation for KYC challenges

The webinar touched on several industry focus areas and emerging trends, including:

  • Robotics for data gathering

Robotics can be used to reach out directly to premium data sources and seamlessly pull in required information to populate KYC profiles, in the process saving time, reducing client touchpoints, and creating a more complete and reliable view of risk.

  • Machine learning to lower false positives

False positive screening, especially in the negative media field (for example, where an organization is mentioned, but as the whistleblower not the guilty party), can add significantly to screening times. Machine learning can help to pinpoint these false positives and automatically exclude them.

  • Optimizing workflow

Integrated workflow solutions that join the dots between different departments and standardize KYC processes are growing in popularity.

  • Data analytics

There has been a marked move towards using data analytics to make sense of vast amounts of data by, for example, identifying trends and building a holistic view of risk.

  • Digital transformation

Growth in digital identity verification and proofing has been significant recently as fintechs develop cutting-edge solutions that offer speed and reliability.

  • Dynamic monitoring

The industry is turning away from traditional periodic client risk reviews in favor of dynamic, real-time monitoring.

Finding the right solution

When choosing the right solution to their particular KYC challenges, organizations should remember that robotic process automation is not a silver bullet and the costs involved — for set-up, customization and maintenance — are significant.

Many organizations turn to managed services to provide more agile solutions. Managed services offers a cost-effective way for FIs to benefit from the explosion of innovation within the industry, since they spread the significant infrastructure costs across a large client base.

Moreover, managed services offer a dynamic combination of technology and strong subject matter that can be tailored to specific requirements, but also bring invaluable human expertise into the mix in line with the conviction that technology should be used to augment human intelligence, not replace it.

How Refinitiv can help

Refinitiv’s best-in-class risk solutions deliver you comprehensive KYC records on any corporate client anywhere in the world.

It features an industry leading 400,000 complete and maintained KYC records, plus an entity database of 3 million-plus corporations and 280,000 funds. 

The solution manages identity verification, screening and the monitoring of corporate clients across the globe, and is backed by a powerful combination of people, process and technology to cut through complexity.

The service is built on a platform that streamlines KYC workflows, integrates trusted legal entity information, manages the collection of privately held information, and is underpinned by a global policy that has been stress tested with over 100 regulators and financial institutions.

With the addition of our Enhanced Due Diligence (EDD) reports, firms have the customer risk identification managed services they need to focus what matters most, truly understanding their customer. When individuals or entities present additional risk, we can seamlessly conduct an EDD to provide the institution additional insight on the client.

Access the webinar: Evolution in KYC: From Cost Control to Innovation

Evolution in KYC: From Cost Control to Innovation. Innovation for today’s KYC challenges