It is often assumed that the Know Your Customer process is not of interest to financial service providers. A thorough customer identity check is a legal obligation, but consumers often see it as intrusive. We write about current trends, challenges and solutions so you can responsibly combine KYC and data protection.
Know Your Customer (KYC) is necessary for financial institutions. Otherwise, they cannot comply with the Money Laundering and Terrorist Financing Act (Wwft) and the European Money Laundering Directive (AML). As well as complying with this legislation being necessary, it also sets the foundation for a seamless customer experience. “With in-depth customer knowledge, an organization always shares the correct information at the right time. This ensures pleasant onboarding, high customer satisfaction, and strong loyalty – and thus ultimately success,” says Rudy van Haandel.
Hyarchis is a fintech company operating internationally, supporting financial institutions with advanced regulatory compliance and operational efficiency solutions. Hyarchis’ KYC proposition enables organizations conducting mortgages, accountancy, banking and insurance, and others to comply with current laws and regulations. In addition, this compliance update improves customer satisfaction and optimizes business processes.
“In essence, the laws and regulations surrounding KYC are about preventing money laundering and ensuring that money is not used for terrorist purposes,” says Van Haandel about the current relevance of the KYC topic. “Because of the major impact money laundering and terrorist financing can have on society, there is currently a strong focus on fraud prevention. At the same time, the GDPR has increased privacy awareness. Not only within organizations but also among consumers, who are increasingly aware of data protection rights and obligations.” For instance, in response to a complaint addressed to KFID, a bank was issued a warning for using the BSN in customer (re-)identification. While the bank is authorized to ask for a non-edited copy of a passport to verify authenticity, storing it violates the AVG.
“The challenge for organizations is to find a suitable mix between anti-money laundering compliance measures and privacy measures,” Van Haandel summarizes. “Customer experience is also a concern here: a very extensive and time-consuming screening can come at the expense of a pleasant customer experience.”
The gatekeeper function is increasingly important for financial service providers. After all, a bank has to take great care that no suspicious person becomes a customer and that all money flows are fully accounted for. “Careful identification, control, and monitoring of people you give access to your services and systems prevent the organization from being associated with any economic crime, such as money laundering, corruption, and fraud. In addition, a strong Know Your Customer process reduces the risks of reputational damage and rule violations.”
There are two success factors in KYC processes: awareness of the benefits for organizations seeking to work towards KYC AND the potential of regulatory compliance software, which contributes to reliable customer information and GDPR compliance. “A smart KYC platform provides access to various reliable datasets with background information on companies and individuals, so you can quickly collect the relevant information and correctly safeguard the personal data you cannot process because of the AVG. With the right software, you then reveal – automatically and quickly – through cross checks any criminal activities of companies and individuals.”
“In the fight against money laundering and terrorism, there is an ongoing rat race between organizations, criminals, and legislators,” Van Haandel observes. “Financial service providers play an important role as gatekeepers and are frontrunners in the market with issues such as the governance of KYC processes. Other sectors can learn a lot from this, for example, regarding the balance between crime prevention, customer-centricity, and data protection.” Van Haandel has three tangible tips for the successful deployment of KYC processes:
- First, make the topic an integral part of plans for digital transformation. Ensure KYC and other compliance processes do not become a concern of one department. You need management and board support to take it seriously;
- In addition, be careful not to reinvent the wheel. Every organization is, of course, unique, but the majority of work processes are pretty similar from a KYC perspective;
- Innovative technology is not a luxury but an absolute necessity. If you want to serve your customers well, you must put things in order, regardless of the sector in which you operate.