Why Data is at the center of Next-generation KYC/AML?
A CEB KYC Market Report reveals that over 50 per cent of the banks around the world continue to use old and outdated technologies for KYC and AML processes. Is it then surprising that financial crime is estimated at US $20 billion a year, growing in double digits and money laundering a major contributor to this staggering number?
In this context, strict compliance requirements and ever changing regulatory environment are compelling banks to upgrade their KYC/AML systems, run an enhanced customer onboarding process, manage compliance risk and use analytical tools to derive key insights from KYC data.
Additionally, according to research conducted by Thomson Reuters, there is an increase in engagement between banks and regulators around the world. To quote specific numbers, in Hong Kong, over 51 per cent of banks and FIs reported an increased dialogue with the regulator. In the UK, this number is at 47 per cent.
The other important aspect here is that data complexity has gone up tremendously. For example, at Citibank alone, there are over 200 million accounts to manage in 160+ countries. The story is no different in the Top 50 global banks.
At Cenza, we believe, data will be at the crux of all innovations in KYC/AML processes in the coming years, since sanitized and well managed data structures will determine better compliance. Five key trends that are expected to help banks improve their data management process to enhance the robustness of their KYC/AML efforts include the following:
Next-Generation Data Sourcing and Management: In 2016, Wells Fargo had to pay a heavy fine when a scandal came to light, where employees created fraudulent accounts to meet steep targets. This emphasizes the need for better ways to onboard customers, monitor transactions, detect and prevent money laundering and prevention efforts.
Banks are increasingly expected to:
· create stringent processes for sourcing data from reliable sources continuously
· collect a clear list of data sources, internal as well as public sources, that have been verified and are credible
· Maintain a dashboard and visualization of customer history
· Categorize customers to fit into relevant risk profiles
Data Analytics for Fraud Detection: Banks & FIs will use cutting edge tools for data management and analytics to help in risk data aggregation.
· Integrating historical data with real time data, will help in better understanding of customers.
· Automation and machine learning technologies will also help improve algorithms for handling incoming data, thus improving not only operational efficiency but compliance as well.
Centralized Data Governance: In the case of several FIs, even today, data is managed in silos (by geography, by business unit, etc.), which lets fraudsters slip through the net. Centralized data governance initiatives along with better analytics tools will help prevent issues caused due to storage of data in silos. A central data repository will become the norm in any next generation KYC process.
Policy-Based Processes: Banks will design their KYC systems such that processes are segregated by use. There will be separate KYC processes run for managing risk, for keeping up with evolving regulations and for observing patterns from customer lifecycle data.
Geography-related challenges: Here it is also significant to mention that one of the challenges banks and FIs face is that of different regulatory requirements across different geographies. However, in a positive move, regulators around the globe are working on developing standard reporting guidelines across geographies, and this will go a long way in minimizing KYC costs. However, it is crucial to manage data structures in such a way that, geography-specific KYC processes, fit in as layers, without reducing the efficiency of the overall KYC/AML Process.
In short, the role of data management and analytics is central to a robust, reliable KYC process. High quality data management will not only make the KYC/AML Process more efficient, but also enable reduction in costs and complexity.
Would you like to know more about next-generation data management for KYC? Reach us here.