Meeting compliance and the challenges of manual onboarding and KYC refresh for banks

Many banks struggle to streamline their KYC workload – and please regulators – due to their oversized compliance teams. Not only this, but the amount of manual work that is undertaken by these segmented teams is similarly large, causing friction across their whole onboarding and monitoring processes.

The challenges of KYC compliance for financial institutions are underlined by these industry studies:

• 47% of US banks cite regulatory compliance as their main challenge in 2020, as do banks in Europe with 40% (PwC)
• File touch times for onboarding high risk entities can take between 10 and 25 hours (Oliver Wyman)
• File touch times for ongoing reviews are only three hours shorter than the file touch time for onboarding (Oliver Wyman)
• 81% of global decision makers at financial institutions believe poor data management lengthens onboarding and negatively affects customer experience (Fenergo)
• An average of 307 compliance professionals work on KYC adherence at large financial institutions (Thomson Reuters)

What are the reasons for the difficulties in achieving an automated KYC process through compliance teams, and how are banks looking to solve this friction?

Friction in compliance

Much of the reason for why banks really struggle to completely streamline their KYC processes is that these workloads are often shared across multiple teams. In an ideal world, one would only have to conduct this research on a one-time basis, to then be monitored continually from then on through a Perpetual KYC (pKYC) cycle, however this is rarely the case.

Often this KYC research – identifying checks into customers, businesses, beneficial owners etc – gets duplicated as alerts are escalated through a hierarchical system in compliance teams. This initial roadblock then becomes more problematic due to the fact that these repeated checks are manual rather than relying on automation through machine learning. The lack of speed in these checks being carried out reduces the customer experience of onboarding, and also brings large, unnecessary expenditure into account.

Friction #1 – Siloed teams

KYC teams within banks are often spread across various departments in siloed teams, from the customer-facing front end support to the back-end data analysts. This causes a huge disconnect in the way that information is shared, causing KYC data to be out of date and lowers the value of completed KYC profiles, contributing to a far slower process for completing KYC and KYC refresh.

Friction #2 – Manual workload

Customer data collection conducted by banks often involves a lot of cumbersome paperwork, where unstructured data is sporadic and needs to be entered manually by analysts. This is a huge time drain for initial KYC checks which is only made worse through data reuse and repeated research.

Friction #3 – Lack of data quality for continuous monitoring

Having to collate several different types of data and coordinate this across siloed teams can have a huge impact on the quality of the data that is collected. Missing data causes holes in entity profiles which means that initial KYC needs to be conducted time and time again, and the validity of continuous monitoring for these customer profiles through pKYC is low.

Case studies in the current climate

The current climate has seen tough times for compliance teams; it is expected that compliance departments for some of the largest bank’s London teams will be cut up to 25% in the next one to two years, this being due to cost-saving efforts and a boom in regulatory technology looking to lower manual workload.

In July of this year, Credit Suisse announced a restructuring effort, which included a consolidation of its risk and compliance teams to an operating model which looks to lower the duplication of data as highlighted above, as well as improving coordination to contribute to a streamlined compliance effort.

Other banks that have looked to cut headcount within their compliance teams include HSBC. It has become imperative that sharing customer data needs to be done through smaller teams and through more advanced technological means. When it comes to initial KYC onboarding, automated processes through a single environment are the key to have coordinated teams – front-end and back-end – working together to share customer data correctly. A PwC study has found that 54% of banking respondents see the enhancement of customer data collection to be their main priority in the next five years.

Improving continuous monitoring

Compliance teams will need to have a frictionless KYC process for initial onboarding in place for continuous monitoring to be achieved correctly at a later stage. When a complete KYC process is outlined and enhanced for customer onboarding, this all contributes to a greater experience for both the customer and the bank.

One way to streamline the KYC process across teams is through automation. Arachnys has helped a Tier 1 bank to implement a structure to do exactly this. KYC acts as the entry point for external data, and the bank leveraged the capabilities of the Arachnys platform to define a fully transparent audit trail to speed up the onboarding experience within one environment, and reduced costs by removing the need for manual, repeated tasks. The evidence of entity enrichment improves the quality of data, with the comprehensive audit trail being helpful to meet compliance in a tough regulatory environment.

With a frictionless KYC process available for various teams to work together in one environment and share accurate data accordingly, the ability to onboard high risk entities is enhanced, with file touch times reduced and costs lowered. From here, more complete entity profiles are able to be continuously monitored through automated processes, and KYC refresh can be conducted without duplication of initial onboarding tasks.