Native KYC, a Competitive Advantage

Preventing financial institutions from being used, intentionally or not, in money laundering and terrorist financing activities is the main objective of Know Your Client (KYC) compliance. A robust KYC program assists the financial institutions in understanding their customers and their expected activities better which results in a more efficient risk management and customer servicing.

KYC compliance guidelines and Customer Due Diligence (CDD) requirements have evolved over time and have become an ever-increasing burden difficult to comply with. Increased regulatory pressure and implementation / maintenance costs, coupled with the need to improve customer experience, have made KYC a very hot topic and an ongoing challenge for financial institutions.

An effective KYC program lays the foundation of an effective Risk Management, Anti-Money Laundering (AML) and Counter-Terrorist Financing (CTF) compliance foundation. In this regard, it is difficult to underestimate the importance of KYC for the financial institutions.

It is estimated that AML-KYC compliance technology spending reached $9.1Billion in 2020.

Figure 1. AML-KYC technology spending (2020 estimate by Celent)

Overall, regulatory technology (RegTech) spending is expected to exceed $130 Billion in 2025. Electronic KYC (e-KYC), thanks to digital onboarding, and fueled by AI, is growing rapidly. The global e-KYC market alone is projected to increase from $0.29 Billion in 2019 to $1.57 Billion by 2027.

New KYC compliance trends have emerged in response to the above-mentioned KYC-related challenges, offering better compliance and reduced risk at lower cost, scalability, digitalization, and an improved customer experience. In this light, it is of critical importance to better understand the KYC compliance trends along with its challenges and opportunities.

Some of the emerging trends we have observed are:

Digitalization of the KYC process, data analysis, and compliance.
Focus on the Customer experience to make onboarding more convenient and faster.
KYC process automation with added scalability and security, allowing to embed KYC governance and related controls into business processes.
On-going and on-demand KYC compliance.

At Sia Partners we are focused on helping our clients understand and tackle regulatory challenges and solving complex cross business transformation problems.

1. Do you have the right strategy to tackle the problem?

Financial institutions are asked to enhance their risk-based approach, policies, procedures, and controls to be able to detect suspected money laundering activities. At the surface, the question ‘who is your client’ sounds simple to answer but the complexities for large multinational organizations make the task daunting. However, the digitalization of the KYC process can help with process efficiency, cost reduction, and improving the client experience, by shortening the onboarding time and simplifying the submission of the required identification documentation. For example, digital identity solutions can reduce KYC-related costs by up to 70%.

The key elements of an efficient KYC process can be summarized as follows:

Digitalizing data inputs results in a dramatic decrease in paper documentation and manual validation processes. Implementing mobile and online account opening journeys generate client data in digital format, allow its validation at the first point of contact, increase the accuracy and completeness of the data, and reduce data issues.

The amount and the quality of the data is essential to build and sustain an accurate and complete view of the client and ultimate beneficial owner (UBO) at all levels of the organization and throughout the duration of the relationship. Additionally, it is important for organizations to have a robust Target Operating Model (TOM) and business processes, coupled with state-of-the-art multi-tier technology, to run an efficient program.

There are numerous integration points with legacy platforms that need to be designed, built, tested, and deployed to help organizations answer the question.

Sia partners can help your organization build a flexible and robust digital platform and process that can be tailored to adapt to new business rules.

2. Having the right building blocks in place is key to your success

KYC is one of the most dynamic and challenging problems in today’s highly regulated business environment. Regulatory and business rules are constantly evolving across geolocations and jurisdictions, whether you try to meet FATCA, AML/KYC, DFA, DFS, EMIR, MiFID II, IIROC, Tax, or CRS regulations.

Organizations need to start by establishing Client Lifecycle Management (CLM) systems. The next step is to integrate CLM into Client Relationship Management (CRM) processes. Once integrated, the combined CLM/CRM processes create manyfold efficiencies, prevent the fragmentation of client data, therefore, simplifying decision making and client reporting across the organization, and reduce cost. Standardization of the Client Onboarding process based on a rule-based approach is at the heart of the success of a KYC transformation program. To build the complete client profile and view successfully, organizations need automation tools and robust business processes. To be successful, firms must be able to manage risk by assuring that all the client information collected is relevant, complete, and accurate. Helping relationship managers and front office staff to cut client on-boarding time and cost is a key performance indicator and an important success factor.

Transforming and re-engineering such complex environments is at the heart of Sia Partners offerings.

An accurate client view is an essential tool for the success of your project

A client view, to help firms accelerate CDD and risk assessment, can be constructed by aggregating information collected in the form of documentation, structured, and unstructured data from external and internal sources and using cutting edge technologies like artificial intelligence (AI), machine learning, data analytics, and cloud-based tools.

To achieve a complete client view, it is not enough to build only a client and account view. Organizations need to go further than that and ensure that the client view is available across multiple countries and legal entities of the firm. In addition, a complete product inventory taxonomy must be available to map the clients and accounts to products offered by the firm at all levels. The ability to develop and maintain a Universal Product Master (UPM) list is key for the success of this type of initiative across all the Lines of Businesses (LOBs) in the organization. A well-defined UPM model can be used to identify if the same product is offered by multiple LOBs, as well as to organize a master standard fee for each product and individual fee schedules for clients.

Compliance staff can set the hierarchical view and well-structured taxonomy with consistent meaning and definition to assess Nature and Purpose at the product level for each client and client account as well as Expected Vs Actual client behavior for all transaction types. Updates or corrections based on Nature and Purpose assessment must be reflected to the source systems to assure data integrity and completeness end to end.

Sia Partners’ experienced team of consultants can help you design a well-defined workflow management process covering tasks, automatic communications, integration of screening, Customer Due Diligence, Enhanced Due Diligence, and reporting while adhering to privacy regulations and rules, restrictions related to the Bank Secrecy Act and fiduciary obligations.

Reporting and visualization tools are essential for management transparency

The historical profiles created through the CLM process are used to compare the historical activity and are scored based on deviations above certain thresholds. This process triggers an alert generation that highlights inconsistencies with normal activity. MIS reporting and visualization tools are needed to track Key Performance Indicators (KPIs) and active CDD cases from start to finish. RAG (Red Amber Green) status summary and detailed reports outlining all the actions and red flags raised during the CDD process are essential components for a successful implementation that provide process transparency for key metrics.

Comprehensive metrics and effective reporting provide management with the transparency needed to monitor the process and measure KPIs end to end. Examples of KPIs to be recorded include, among others, the time analysts need to get the information needed from the client to complete KYC, tracking errors for KYC records that fail quality controls, and audit findings etc. Reporting and visualization tools are important for management to be able to identify bottlenecks in the workflow and client pain points to drive change to assure that client satisfaction remains high.

KYC Transformation is a complex initiative with many risks and challenges including lack of (UPM), poor quality of data, inefficient operating model, unclear roles and responsibilities across entities, and manual processes.

Sia Partners can help your organization rationalize and modernize systems, Target Operating (TOM) Models, and Tools so you can focus on increasing your team’s productivity, lowering your operating costs, increasing your customer satisfaction, and improving the quality of your data.

Sia Partners has a proven track record of successfully meeting the regulatory needs for a wide range of clients, across a range of industries, globally. We have developed deep expertise over hundreds of cross-sector compliance projects in the areas listed below. We stand apart from other consultancies for our investments in AI and ready-to-use tech to support your initiatives.

Sia Partners Solutions in Regulatory Compliance

Program Implementation & Assessment

Platform adoption & change management.
Responding to regulatory or internal audit requests.
Risk assessment, Suspicious Activity Monitoring, Sanctions Screening, Transaction Monitoring.
Develop and improve Suspicious Activity Reporting.
BSA/AML Project/Program Management and PMO.
Regulatory Change management.
Third-party regulatory and risk review.

Design Target Operating Model

AML/AFC Program and Project Management.
Regulatory impact assessments and remediation.
Gap analysis/Independent review for AML/BSA requirements, KYC, TM & Sanction Screening.
Determining or implementing a strategic path to achieve future state requirements.
Redefining and digitalizing the KYC process and client onboarding.

AI Solutions and Bots

Sanctions Challenger: an AI solution enabling our clients to challenge and test the effectiveness of their Sanctions Screening / Filtering tool.
Transaction Monitoring: a solution leveraging AI and Machine Learning to identify suspicious activity within transactions and minimize the number of false-positive alerts.
Adverse News: a bot to automate the collection, screening, and categorization of news content found on the web.

Policies, Procedures, and Training

Drafting, editing, and enhancing AML/BSA policies and procedures.
Training employees on best practices.
Update and maintain training procedures and documentation.

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