The need for fast and effective Customer Due Diligence (CDD) is accelerating up the boardroom agenda at banking, mortgage, and insurance providers. Fortunately, some institutions are finding easier ways to achieve Know Your Customer (KYC) compliance — freeing themselves from spiraling costs and complexity.
Just weeks ago, an NTT Data report included a startling fact. The top 10 percent of the world’s financial institutions spend at least US $100 million on CDD each year. It wasn't a complete shock to industry watchers. Previously, Celent had estimated global spending on Anti-Money Laundering (AML) and KYC compliance technology, operations, and data was on course to reach US $32.1 billion in a year.
These might seem like monumental sums to justify — unless you're aware of the penalties imposed relating to AML and KYC. These weigh in at a staggering $26 billion, according to estimates in the NTT Data report.
But the true cost goes way beyond the fines. As compliance failures hit the headlines, the reputations of financial brands suffer severe damage. Customer confidence and revenues slump.
Sense of urgency
The growing anxiety around KYC has created a sense of urgency over the adoption of CDD technology. A separate report from Thomson Reuters found that 60 percent of C-suite respondents said they had dedicated more time and attention to KYC challenges.
In fact, large financial institutions (with a $10 billion-plus turnover) have increased expenditure so sharply that nearly one-third of their annual global onboard spend is now on systems to ensure regulatory compliance.
Organizations need KYC and CDD expertise to guard themselves against fraud, money laundering, terrorist activity, and other risks. Legally, they must be in control of data at all times. But they face three specific challenges:
Challenge #1: Knowing the risks you face
Financial services providers must be aware of the fine detail of legislation and exactly where they're vulnerable, whether it's from GDPR, the latest European Anti-Money Laundering Directive, or another legal requirement. They must also understand how these relate to the customer data they hold, including IDs and passports, BSN numbers, medical data, names, nationalities, and more.
Challenge #2: Conquering your archives
A decade ago, some data might have seemed irrelevant, but now it's of critical importance. For example, personal information might be present within paperwork from a doctor, or a fax from an intermediary from 2008 and no-one realizes this — but today, this is sensitive data. The task can feel overwhelming when institutions struggle with archives of 300-400 million pages going back 20-30 years. Some investments may have transferred hands too, so there's even more data that's not indexed correctly or understood.
Challenge #3: Keeping everything up to date
Historically, OCR has helped, but it isn't a solution. Data can be fragmented, inconsistent, and unstructured. And it often stays that way. The Thomson Reuters report found that only one-quarter of financial institutions schedule periodic checks and just 11% use dynamic checks to ensure records are always up to date. But organizations need digital transformation in this area to take control — and stay in control.
In an increasingly regulated world, forward-thinking financial institutions must know their data intimately and recognize quickly where any customer cases require additional security and control procedures. For example, effective CDD should identify people with a heightened risk profile or customer files in which critical data is missing or hidden — so a financial institution can take action.
For this to happen, organizations must adopt an innovative approach and use proven technology to streamline KYC processes and stay ahead of the regulatory curve. This requires taking control of your data across archives of all types, using artificial intelligence to manage potential risks effectively — at speed and scale.
With the right platform, KYC and CDD can be embedded within organizations as automated processes — so every fragment of data is understood, it's in the right place, and can be found in moments. Flexibility is vital in an ever-changing business environment. After all, you never know what the regulators in 1-5 years' time will claim that you should have been indexing today.
Take a closer look at our CDD factsheet which explains more about how it's possible to extract relevant data from unstructured source documents, so you can carry out risk profiles and protect your organization. Also read about tech advances within governance and compliance.