News & Blog

The Future of KYC Compliance — Insights From Raj Tripathi

Future of Compliance
November 4, 2020

This article is part of Kyckr’s new Future of KYC Compliance series, which interviews leading industry professionals and thought leaders to learn more about the trends that will shape the future of KYC compliance.

The following is an interview we have recently had with Marc Buklis, Principal at Marc Buklis Associates.

What’s the current state of KYC compliance? 

MB: KYC compliance for financial institutions has benefited from comprehensive programs to address KYC needs within onboarding and regular review, and to remediate gaps. Regulatory pressure and top-level executive leadership have led to the industry level of compliance improving drastically over the past decade. In terms of technology and operations, however, KYC continues for many organizations to be labor intensive. Advances continue in onboarding, standardizing customer risk rating and capturing and storing documentation. However, customer identification still often requires manual input and due diligence and enhanced due diligence activities by analysts involve minimal automation. For corporations and trusts, challenges continue globally in the identification of beneficial owners, as centralized registration of such information does not exist. Still, KYC for financial institutions, in terms of compliance and in terms of technology, is well advanced compared to other institutions covered by AML and Anti-Terrorism legislation. It is possible at this point that strict KYC efforts in financial services are driving AML activities to other, easier targets with less stringent enforcement and technology. Advances will need to follow to those organizations. 

How has KYC compliance evolved over the past 5 years? 

MB: Over the past 5 years, KYC remediation efforts at many institutions has improved overall compliance. While the focus of these programs has been on compliance, they have also seen the increasing application of new technologies for automation and decision-making. Automation technologies like Robotic Process Automation (RPA) have been combined with optical technologies, artificial intelligence and machine learning have been increasingly applied to high volume processes and particularly to manual data collections and analysis that aid decision making for onboarding, rating, due diligence and enhanced due diligence for KYC. While there is still significant human intervention in these activities, organizations have been making real progress in deploying these new technologies, and in exploring ways to integrate the technology to ease the workload of analysts and to improve their accuracy. New technologies can automate and accelerate the capture and summary of large amounts of data, allowing analysts more time for review of critical information rather than data capture. The new technologies can enable users to find the salient information which convinces them to flag a new customer and update their rating upwards or downwards.

Together with this increasing application of technology, models and algorithms has been an increasing effort on model governance. Wherever such algorithms are applied to KYC, there is pressure to document the assumptions made, the modelling approach, the validation of the models and the regular review of the model – in order to improve transparency and governance.

An interesting development – still in progress – is the use of Blockchain in proofs of concept for identity validation. This offers the possibility of safe, secure and fully digitized validation of identities, which could dramatically transform KYC.

How has KYC compliance changed in the midst of COVID? 

MB: During COVID, KYC requirements have continued, and in-flight AML program work has continued as a critical effort. However, even critical work such as AML and KYC has seen some slowdown as the financial services industry has moved to work from home and has needed to focus on COVID-driven liquidity and credit challenges. 

A key impact of COVID in banking has been to dramatically accelerate the trend, underway since the 1990s, towards online and phone banking. During the lockdown associated with COVID, the general population did not go out nearly as often, many retailers were closed and many others declined to take cash in order to limit COVID risk. The rapid move further away from cash, and to almost entirely online banking, has changed the profile of all customers and the nature of the risks to be considered in rating systems. It also changes the nature of mitigation and due diligence, as customers will not be in person for applications, nor for later transactions, for teller review and assessment. Suddenly, the way the customer looks, or behaves in the branch, will not be available to send signals to staff!

This development will certainly put further pressure on digital means of identification, including Blockchain and other approaches, in the very near future. 

What are the top trends shaping the future of KYC compliance? 

MB: In summary, then, KYC compliance continues to evolve, with several key drivers:

  • New technology, for data capture, automation and decision-support
  • Adaptation to ever increasing online banking, with changes to models and rating to reflect the new basis of activity and behaviour

The KYC compliance, then, is being driven by data management and data science. 

Given this trend, it’s important to note that data security and privacy will only become MORE important, as automated KYC compliance becomes even more automated and digitized. Financial institutions already carry massive amounts of valuable, sensitive data. The increase in online trends and the increased automation of the process will only make this data more valuable and more in need of protection.

What’s the future of KYC compliance?

MB: The future of KYC compliance is in continuously improving automation of data capture, identity validation, rating and due diligence, supported by human overrides. With increased automation, much of the human organization of KYC will no longer require outsource to lower cost locations. The key cost drivers will be models, technology and data storage, as opposed to human labour, thus limiting the benefit to wage arbitrage, while maximizing the benefit of skilled resources with critical knowledge across the organization. 

About Marc Buklis:

Marc is a long-time executive management consultant in risk management and technology, has advised multiple banks, industry groups and government agencies on AML regulations and technology. All opinions expressed are his own.

Future of Compliance
November 4, 2020

This article is part of Kyckr’s new Future of KYC Compliance series, which interviews leading industry professionals and thought leaders to learn more about the trends that will shape the future of KYC compliance.

The following is an interview we have recently had with Marc Buklis, Principal at Marc Buklis Associates.

What’s the current state of KYC compliance? 

MB: KYC compliance for financial institutions has benefited from comprehensive programs to address KYC needs within onboarding and regular review, and to remediate gaps. Regulatory pressure and top-level executive leadership have led to the industry level of compliance improving drastically over the past decade. In terms of technology and operations, however, KYC continues for many organizations to be labor intensive. Advances continue in onboarding, standardizing customer risk rating and capturing and storing documentation. However, customer identification still often requires manual input and due diligence and enhanced due diligence activities by analysts involve minimal automation. For corporations and trusts, challenges continue globally in the identification of beneficial owners, as centralized registration of such information does not exist. Still, KYC for financial institutions, in terms of compliance and in terms of technology, is well advanced compared to other institutions covered by AML and Anti-Terrorism legislation. It is possible at this point that strict KYC efforts in financial services are driving AML activities to other, easier targets with less stringent enforcement and technology. Advances will need to follow to those organizations. 

How has KYC compliance evolved over the past 5 years? 

MB: Over the past 5 years, KYC remediation efforts at many institutions has improved overall compliance. While the focus of these programs has been on compliance, they have also seen the increasing application of new technologies for automation and decision-making. Automation technologies like Robotic Process Automation (RPA) have been combined with optical technologies, artificial intelligence and machine learning have been increasingly applied to high volume processes and particularly to manual data collections and analysis that aid decision making for onboarding, rating, due diligence and enhanced due diligence for KYC. While there is still significant human intervention in these activities, organizations have been making real progress in deploying these new technologies, and in exploring ways to integrate the technology to ease the workload of analysts and to improve their accuracy. New technologies can automate and accelerate the capture and summary of large amounts of data, allowing analysts more time for review of critical information rather than data capture. The new technologies can enable users to find the salient information which convinces them to flag a new customer and update their rating upwards or downwards.

Together with this increasing application of technology, models and algorithms has been an increasing effort on model governance. Wherever such algorithms are applied to KYC, there is pressure to document the assumptions made, the modelling approach, the validation of the models and the regular review of the model – in order to improve transparency and governance.

An interesting development – still in progress – is the use of Blockchain in proofs of concept for identity validation. This offers the possibility of safe, secure and fully digitized validation of identities, which could dramatically transform KYC.

How has KYC compliance changed in the midst of COVID? 

MB: During COVID, KYC requirements have continued, and in-flight AML program work has continued as a critical effort. However, even critical work such as AML and KYC has seen some slowdown as the financial services industry has moved to work from home and has needed to focus on COVID-driven liquidity and credit challenges. 

A key impact of COVID in banking has been to dramatically accelerate the trend, underway since the 1990s, towards online and phone banking. During the lockdown associated with COVID, the general population did not go out nearly as often, many retailers were closed and many others declined to take cash in order to limit COVID risk. The rapid move further away from cash, and to almost entirely online banking, has changed the profile of all customers and the nature of the risks to be considered in rating systems. It also changes the nature of mitigation and due diligence, as customers will not be in person for applications, nor for later transactions, for teller review and assessment. Suddenly, the way the customer looks, or behaves in the branch, will not be available to send signals to staff!

This development will certainly put further pressure on digital means of identification, including Blockchain and other approaches, in the very near future. 

What are the top trends shaping the future of KYC compliance? 

MB: In summary, then, KYC compliance continues to evolve, with several key drivers:

  • New technology, for data capture, automation and decision-support
  • Adaptation to ever increasing online banking, with changes to models and rating to reflect the new basis of activity and behaviour

The KYC compliance, then, is being driven by data management and data science. 

Given this trend, it’s important to note that data security and privacy will only become MORE important, as automated KYC compliance becomes even more automated and digitized. Financial institutions already carry massive amounts of valuable, sensitive data. The increase in online trends and the increased automation of the process will only make this data more valuable and more in need of protection.

What’s the future of KYC compliance?

MB: The future of KYC compliance is in continuously improving automation of data capture, identity validation, rating and due diligence, supported by human overrides. With increased automation, much of the human organization of KYC will no longer require outsource to lower cost locations. The key cost drivers will be models, technology and data storage, as opposed to human labour, thus limiting the benefit to wage arbitrage, while maximizing the benefit of skilled resources with critical knowledge across the organization. 

About Marc Buklis:

Marc is a long-time executive management consultant in risk management and technology, has advised multiple banks, industry groups and government agencies on AML regulations and technology. All opinions expressed are his own.

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