Globally, Banking and Financial Services (BFS) organizations face high costs in staying compliant with regulatory requirements. In 2021, advisory firm Celent found that spending on Anti-money Laundering (AML) and Know Your Customer (KYC) compliance was to the tune of USD 37.1 Billion.

Financial enterprises spend anywhere between USD 13 and north of USD 130 per KYC check. This costs a mid-tier bank an average of USD 60 Million per year and can spiral to hundreds of millions of dollars for top-tier banks.

With heightened regulatory requirements – such as FinCEN’s Final Rule on Customer Due Diligence (CDD) and the EU’s 5th and 6th AML Directives – BFS companies are looking for ways to ensure that the KYC information on file is up-to-date and refreshed on an ongoing basis.

Tackling Process Design

Increased compliance costs, frequent regulatory changes, lack of skilled resources and, more importantly, siloed, outdated systems make it difficult to meet regulatory needs. However, any failure on the AML-KYC front exposes a company to serious risks and increasingly hefty penalties.

Traditionally, customer reviews based on risk scores have been done at intervals of one, three, or even five years. Employing such methods today would make organizations vulnerable to money laundering and other fraudulent activities.

To protect business and reputation, it is essential to unearth burgeoning crimes before they cause damage. The goal is, therefore, to shift from periodic KYC to perpetual KYC – a system in which specific triggers or events (rather than time elapsed) update a customer’s information on the database.

Triggers can be determined by the bank’s KYC policies. However, existing processes are not equipped to promptly detect changes to customer profiles. Achieving perpetual KYC is thus a challenge – but not an impossible one!

Perpetual KYC, a Reality

A tool that is helping re-imagine the KYC solution with immense practical benefits is hyperautomation. The hyperautomation approach redefines the due diligence process by ensuring an ongoing KYC monitoring of customers with minimal manual interventions. It thereby improves compliance, reduces risk and enhances efficiency.

It also helps organizations avoid excessive spending on revamping their technology. Hyperautomation works by building a non-intrusive layer of modules on top of existing systems to manage the data and algorithms critical to driving perpetual KYC.

While designing the solution, the current state of the system should be kept in mind. This includes applications and workflows as well as processes and regulations that need to be synchronized to the new policies and procedures.

In short, the solution covers both current and future requirements. Key advantages of implementing hyperautomation include:

  1. Improved scalability of KYC through automation

  2. Minimized risk exposure by shifting away from traditional, reactive KYC

  3. Reduced costs, as automation of tasks, efficient workflows and risk-based review increase operational efficiency and involve smaller teams

  4. Faster reviews that deliver accurate, relevant customer information

  5. High accuracy, owing to the integration of a wide range of data sources and intelligent process automation

The Way Forward

For companies in the BFS industry striving to reduce costs and improve their compliance operations, perpetual KYC is a natural step forward.

However, hyperautomation needs to be supported by robust policies and procedures to determine the due diligence approach towards material and non-material changes and ensure the process is effective in achieving regulatory compliance.

Establishing a target operating model through a digital framework is time-consuming. It requires a multi-phased approach, considering the business divisions, upstream and downstream applications, and complex global and regional regulatory requirements.

Firms need partners with proven credentials in this domain to future-proof their compliance functions. In our next blog, we explore what third parties with deep domain knowledge and technological know-how bring to the table and the steps needed to leverage hyperautomation to achieve a perpetual KYC solution.

WNS, a global business transformation partner, supports leading banks and financial institutions worldwide through a team of 3,000+ professionals across the end-to-end value chain of financial crime operations. It was ranked as a Star Performer in Everest Group PEAK Matrix® Assessment 2022 for Financial Crime and Compliance Operations.

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