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The importance of automated digital onboarding during a global crisis

Insight
April 24, 2020

Operational Resilience in light of COVID-19

Crises, such as the current coronavirus pandemic, inevitably causes fragility and resilience within complex operational systems. Just as the 2008 financial crisis revealed weaknesses in the global financial system, the COVID-19 outbreak is also identifying flaws. As well as more general impacts such as hugely volatile markets and the rapid transition to remote working, financial firms are working out how to continue to serve their existing and new customers and meet their regulatory obligations amidst this severe disruption.

One of these key regulatory obligations is for banks and financial firms to truly understand who they are doing business with, in order to prevent criminals from abusing the financial system to launder money, finance terrorism or commit fraud - commonly known as Know Your Customer or KYC. Regulators, such as the European Banking Authority and law enforcement agencies have issued warnings about the increased risk of financial crime during the current crisis.

In this blog we explore how the automation of customer onboarding can help to maintain operational resilience at a time when two competing factors are putting significant pressure on financial firms’ ability to meet their KYC obligations:

  • Acceleration in the adoption of digital channels for accessing banking and other financial services due to social distancing
  • Increased financial crime risk arising from opportunistic criminals exploiting the crisis to their advantage

The challenge for financial firms will be addressing this tricky combination of pressures whilst maintaining both regulatory compliance and high levels of customer service.

COVID-19: a test of operational resilience

At the end of 2019, the UK regulators consulted with the UK financial services industry on how firms should infuse operational resilience throughout their organisations. The outlined requirements place the onus on firms to determine their important business services and ensure they can continue in the event of a disruption.  The current coronavirus crisis provides a horrifying but very real test of the existing operational resilience of the financial sector, bringing with it unprecedented levels of disruption to the normal functioning of business organisations.

Operational Resilience

Financial firms have had to enact their business continuity plans, moving staff to remote working whilst at the same time ensuring they can operate in their role as ‘systemic stabilizers’ to their customers, employees and the real economy.

This stabilizing function is even more critical than normal as banks are central to the dissemination of the emergency funding provided by states to support businesses and the economy. For example, the UK Government announced Coronavirus Business Interruption Loans, a scheme managed by the British Business Bank via a number of accredited financial institutions. The ability to apply for such loans requires normal account opening procedures to be in place, and at a time where access to funds can make the difference between the survival or not of a business, being able to onboard customers in a seamless and automated manner is more vital than ever.

Acceleration in the adoption of digital channels

As Sandy Shen, SeniorDirector Analyst at Gartner says, this crisis is ‘a wake-up call for organisations that have placed too much focus on daily operational needs at the expense of investing in digital business and long-term resilience’.With the necessity of social distancing, more and more people are switching to digital channels to manage their money, with new groups of customers switching to digital banking for the first time. 

Digital Channels

Regulators, such as FATF (The Financial Action Task Force) and the HKMA (Hong Kong Monetary Authority), are encouraging banks to move to remote customer account opening and onboarding whilst at the same time emphasising the importance of remaining vigilant to financial crime risks. Banks - both incumbents and challengers - are already aware that the success of digital adoption depends on a seamless customer experience but this should not be allowed to compromise the compliance obligations that financial firms have with respect to anti-money laundering. Banks have to balance speedy and efficient customer onboarding and customer due diligence and the increase in customer volumes using digital channels make this even more of a priority - and a challenge.                                      

Increasing financial crime risk

Perhaps most worrying of all is the bad actors that are seeking to profit from the current COVID-19 crisis, using the disruption to further their own nefarious ends. International law enforcement agencies such as INTERPOL and Europol have issued warnings about the increase in financial crime and fraudulent activities as a result of the coronavirus crisis.

In addition, changes in spending patterns and customer behaviour due to lockdown restrictions are likely to raise false flags in anti-money laundering systems, creating additional work at a time when MLROs and their teams are needing to be hyper-vigilant to financial crime risks. Consumers are also switching to contactless forms of payment instead of cash, risking additional ‘false positives’ being generated by monitoring systems and further emphasising the need for rigorous customer identification.

Automating customer onboarding becomes even more important

Key to the success of financial firms weathering this current storm will be how they respond to the dual demands of heightened financial crime risks and the rise in the volume of customers requiring new accounts. Seamless, automated customer onboarding will clearly be a critical part of this response - and solutions such as Kyckr can make a significant difference.

By connecting to over 180 company registries via a single API integration, Kyckr enables firms to meet anti-money laundering regulatory obligations, such as the EU’s 5th money laundering directive (5AMLD) which require financial institutions to ascertain the Ultimate Beneficial Owner (UBO) of a company.  No human intervention is required to retrieve the necessary documents that provide the required level of proof, meaning that customer onboarding is streamlined and there is no reduction in a firm’s ability to take on new customers.  

More importantly, adopting automated customer onboarding solutions such as Kyckr during a time of crisis not only addresses the immediate need to service new customers quickly, these platforms will also improve operational resilience over the longer term and bolster financial crime risk management capabilities, equipping firms with the necessary tools to withstand the next crisis, whenever it may come.

Insight
April 24, 2020

Operational Resilience in light of COVID-19

Crises, such as the current coronavirus pandemic, inevitably causes fragility and resilience within complex operational systems. Just as the 2008 financial crisis revealed weaknesses in the global financial system, the COVID-19 outbreak is also identifying flaws. As well as more general impacts such as hugely volatile markets and the rapid transition to remote working, financial firms are working out how to continue to serve their existing and new customers and meet their regulatory obligations amidst this severe disruption.

One of these key regulatory obligations is for banks and financial firms to truly understand who they are doing business with, in order to prevent criminals from abusing the financial system to launder money, finance terrorism or commit fraud - commonly known as Know Your Customer or KYC. Regulators, such as the European Banking Authority and law enforcement agencies have issued warnings about the increased risk of financial crime during the current crisis.

In this blog we explore how the automation of customer onboarding can help to maintain operational resilience at a time when two competing factors are putting significant pressure on financial firms’ ability to meet their KYC obligations:

  • Acceleration in the adoption of digital channels for accessing banking and other financial services due to social distancing
  • Increased financial crime risk arising from opportunistic criminals exploiting the crisis to their advantage

The challenge for financial firms will be addressing this tricky combination of pressures whilst maintaining both regulatory compliance and high levels of customer service.

COVID-19: a test of operational resilience

At the end of 2019, the UK regulators consulted with the UK financial services industry on how firms should infuse operational resilience throughout their organisations. The outlined requirements place the onus on firms to determine their important business services and ensure they can continue in the event of a disruption.  The current coronavirus crisis provides a horrifying but very real test of the existing operational resilience of the financial sector, bringing with it unprecedented levels of disruption to the normal functioning of business organisations.

Operational Resilience

Financial firms have had to enact their business continuity plans, moving staff to remote working whilst at the same time ensuring they can operate in their role as ‘systemic stabilizers’ to their customers, employees and the real economy.

This stabilizing function is even more critical than normal as banks are central to the dissemination of the emergency funding provided by states to support businesses and the economy. For example, the UK Government announced Coronavirus Business Interruption Loans, a scheme managed by the British Business Bank via a number of accredited financial institutions. The ability to apply for such loans requires normal account opening procedures to be in place, and at a time where access to funds can make the difference between the survival or not of a business, being able to onboard customers in a seamless and automated manner is more vital than ever.

Acceleration in the adoption of digital channels

As Sandy Shen, SeniorDirector Analyst at Gartner says, this crisis is ‘a wake-up call for organisations that have placed too much focus on daily operational needs at the expense of investing in digital business and long-term resilience’.With the necessity of social distancing, more and more people are switching to digital channels to manage their money, with new groups of customers switching to digital banking for the first time. 

Digital Channels

Regulators, such as FATF (The Financial Action Task Force) and the HKMA (Hong Kong Monetary Authority), are encouraging banks to move to remote customer account opening and onboarding whilst at the same time emphasising the importance of remaining vigilant to financial crime risks. Banks - both incumbents and challengers - are already aware that the success of digital adoption depends on a seamless customer experience but this should not be allowed to compromise the compliance obligations that financial firms have with respect to anti-money laundering. Banks have to balance speedy and efficient customer onboarding and customer due diligence and the increase in customer volumes using digital channels make this even more of a priority - and a challenge.                                      

Increasing financial crime risk

Perhaps most worrying of all is the bad actors that are seeking to profit from the current COVID-19 crisis, using the disruption to further their own nefarious ends. International law enforcement agencies such as INTERPOL and Europol have issued warnings about the increase in financial crime and fraudulent activities as a result of the coronavirus crisis.

In addition, changes in spending patterns and customer behaviour due to lockdown restrictions are likely to raise false flags in anti-money laundering systems, creating additional work at a time when MLROs and their teams are needing to be hyper-vigilant to financial crime risks. Consumers are also switching to contactless forms of payment instead of cash, risking additional ‘false positives’ being generated by monitoring systems and further emphasising the need for rigorous customer identification.

Automating customer onboarding becomes even more important

Key to the success of financial firms weathering this current storm will be how they respond to the dual demands of heightened financial crime risks and the rise in the volume of customers requiring new accounts. Seamless, automated customer onboarding will clearly be a critical part of this response - and solutions such as Kyckr can make a significant difference.

By connecting to over 180 company registries via a single API integration, Kyckr enables firms to meet anti-money laundering regulatory obligations, such as the EU’s 5th money laundering directive (5AMLD) which require financial institutions to ascertain the Ultimate Beneficial Owner (UBO) of a company.  No human intervention is required to retrieve the necessary documents that provide the required level of proof, meaning that customer onboarding is streamlined and there is no reduction in a firm’s ability to take on new customers.  

More importantly, adopting automated customer onboarding solutions such as Kyckr during a time of crisis not only addresses the immediate need to service new customers quickly, these platforms will also improve operational resilience over the longer term and bolster financial crime risk management capabilities, equipping firms with the necessary tools to withstand the next crisis, whenever it may come.

Build your Customer Due Diligence and KYC processes on a robust foundation with Kyckr.

Make data work smarter, not harder.

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