KYC Remediation continues to be a challenge for financial institutions.
Failures in KYC remediation may result in unwanted nefarious activities such as money laundering, terrorist financing and other corrupt practices. The cost of failures in KYC remediation are severe and not to be taken lightly as the implications for regulated firms are regulatory fines, financial losses, reputational damage and even imprisonment.
The KYC remediation process typically involves collecting, organising, identifying, verifying, and screening information about an existing customer.
So, what are the best practices financial institutions should adopt?
1. Improve data quality
KYC data should be at the centre of your remediation program. Incomplete and/or missing data can result in remediation delays not to mention unwanted financial crime risks. Criminals will exploit weaknesses in your compliance processes, therefore introducing the necessary controls and safeguards should be a top priority.
Systematically and systemically improving the quality of data can result in big gains. Gaps should be filled, data segmented, standardised, and cleansed to improve the integrity and quality of data. Combining internal and external data with standardised taxonomies and international standards helps cross-border teams share data - although careful considerations must be given to data privacy laws. Obtaining data in a structure and format that requires minimum intervention will save your team time in remediation efforts.
Valuable time and effort is often wasted collecting, consolidating, and cleaning data before it is ready for risk assessment. Focusing on improving data quality and completeness will help in future remediation projects – a win for your business. The value extracted from looking at KYC data points holistically improves the consistency of compliance checks and identifying suspicious patterns. It is worth the investment that will benefit you in the longer-term. Moreover, reverified data has multiple purposes such as targeted marketing campaigns to increase sales and promote additional services to customers.
2. Automation and digital transformation
Today’s compliance processes are a combination of automated and manual processes. A significant cost of compliance is down to manual processes and complicated operating procedures. Identifying manual processes that can be automated will save time, costs and expedites a swift KYC remediation.
Creating the blueprint for a repeatable, scalable, and adaptable KYC process by automating outdated manual workloads will give you the ability to remediate in a shorter-time frame. Time and costs can be significantly reduced by digital automation which should be a core part of your compliance function.
3. Implement ongoing KYC and reduce false positives
Once KYC Remediation is carried out, the updated data should be monitored on an on-going basis. Oftentimes, too much attention is placed on a one-off review without fixing the underlying issues. The quicker you identify risks, the faster you can mitigate them. This can only be achieved by continuous monitoring of changes to your customers’ data to detect new emerging risks in a constantly evolving threat landscape.
Reducing false positives to obtain specific relevant alerts by eliminating noise can deliver time and cost efficiencies and reduce wastage. Improvements in KYC lifecycle management also eliminates laborious repetitive tasks.
Working on the foundations and implementing an ongoing monitoring program for KYC alleviates risk, saves time, and resources and enables compliance teams to put out fires with more robust tools at their disposal. By the time your next KYC review comes along, you will be in a far better position to remediate cases and navigate your remediation program with confidence.
4. Improve client outreach
Client outreach is often an area that requires significant improvement. Your highest revenue generating customers are often powerful wealthy businesses and/or individuals who are running short on time. Do they really want to be contacted by their bank, payment provider, insurer requesting KYC documents? In a fiercely competitive landscape, they are likely to get annoyed and decide to take their business elsewhere.
KYC is naturally important for your company and you must obtain the relevant and necessary documents to comply with regulations, but your customer is unlikely to see this as a top priority. Improving client outreach is fundamental. Digital self-servicing solutions allow clients to update information and upload KYC documents at their convenience whilst also improving the remediation process. How you interact with your customers makes a big difference in customer retention. Assess your client outreach process and see how you can make improvements to deliver a customer-centric approach.
5. Reducing cost and time
Put together criminals, high costs, and time-consuming processes. What do you get? A recipe for disaster. Reducing costs and saving time in manual work is core to how you equip your business to fight criminals as throwing more people at the problem does not fix the issue.
Calculate the estimated cost of your KYC remediation program along with an input cost breakdown to assess underlying costs. Identify and rank risk components according to cost, quality, quantity, and time. By doing this, you can highlight what parts of your compliance program are time consuming, lacking in quantity, falling short in quality, or resulting in high costs. This will enable you to put together an improvement plan to systematically address issues, reduce time, and compliance costs, thereby reducing impact to your bottom-line.
Perform a gap analysis and benchmark your current approach versus best practices. A top down and end-to-end review of your systems, processes, and procedures before you commence remediation will highlight areas for improvement. Change management and process optimisation will deliver clearly visible and tangible results to your remediation program.