Next-Gen KYC – Strategy for Success

Most organisations are already advancing on their path towards automised and intelligent customer information intake, aspiring to make the onboarding process consequent and effective.

Improved efficiency and data accuracy can generate substantial savings. A potential cost reduction in the range of 35-60 percent within the KYC process would not unreasonable, according to observers in the market.

Conversely, costs associated with KYC failure can be extensive, involving the potential impact of compliance failure and customer frustration. In this article, we discuss selected key perspectives on strategies, challenges and opportunities for the generation KYC process.

Sign up for our webinar “Next-Gen KYC: From ‘KYC Failure’ to 50% Optimisation” on the 24th of
November here.

Establishing accuracy

Accuracy is about purpose and usefulness. What constitutes the accuracy of KYC information is however not regulated, which explains the difficulty it poses. Customer-facing personnel are concerned not to irritate customers with irrelevant questions. The key purpose, i.e., determining accurate information for assessing money-laundering risk exposure can however get lost in translation to routine performance. What should not happen is that, instead of focusing on your own potential risks at the core of the process, and the information you consequently need, you look at what questions that other financial institutes ask their customers. Unfortunately, this still happens.

Less is more

There is a danger in asking questions that are too open. Questions need to be better designed, so that collected data more accurately help classify the individual customer risk and feed into the monitoring process.  The guiding principle is to ask as few, yet relevant questions as possible while collecting the maximum amount of information, keeping in mind that it is not an ‘investigation’ at this stage. A common denominator across processes is the potential to use data much more effectively.

Consequent decision-making and the human factor

According to Ronny Gustavsson, Director and Head of Financial Crime Prevention at Advisense, financial institutes that still operate with highly manual review processes will unlikely be able to improve uneven handling, even if guidelines on risk exposure acceptance and routines for assessing KYC responses were made even clearer.

At the present stage, only a few organisations have reached a high level of KYC automation. What one can see so far is that efforts are underway without establishing sufficient control mechanisms to ensure that collected information is credible or discrepant. The same applies to the process for decisions relating to alerts investigations.

There is often significant potential to improve KYC efficiency by taking a more holistic approach around what their actual requirements are based on the general risk assessment and their risk appetite. Effective decision-making is not easy in a space where the definition of what constitutes an unwanted customer is not clear. Automation partly removes the challenges that the human factor poses, even when routines objectively are crystal clear. On the other hand, there are limits to how exact routines can be in order to allow for a risk-based approach. The absurdity emerges when the outcome of a KYC-analysis can be quite different, depending on individual personnel.

Experiences from the KYC process differs vastly from the credit approval process

Ronny Gustavsson

Improved productivity through automisation

Most organisations are already advancing with KYC automation. The process of automisation in itself forces organisations to become more accurate considering the purpose of information, including risk classification, establishing more effectively what constitutes a high or unacceptable risk. It also forces management to take a position on how to deal with customers when required information is not available. Or, making decisions if to onboard certain high-risk customer which will require more monitoring.

Experience in the market with automisation suggests that some often-overlooked strategic issues require careful exploration:

  • Target objective – What is the target objective, and consequently what should be executed in various parts of the process?
  • Capabilities – What resources, availability and competence will be needed to drive the automation?
  • Executive power – Decisions on risk-taking and acceptable exceptions, investment decisions and the ability to drive transformation.
  • Future-proofing the automated KYC-system – Create assurance that forthcoming regulatory requirements can realistically be met.

For more information, please contact:

Ronny Gustavsson

Director & Head of AML/CTF

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