A new global market study suggests a critical need to accelerate the use of digital technologies and shared platforms for “know your customer” (KYC) processes and cultivate a shared understanding of how digital-enabled KYC can transform outcomes for people and businesses.
Protiviti and the International RegTech Association (IRTA), authors of the study, shared these insights during a panel discussion at American Banker’s recent RegTech 2019 conference in New York. Shubhendu Mukherjee, a director with Protiviti’s Risk and Compliance practice, and Richard Maton, executive board member for the IRTA, said the study involved discussions with regulators, financial institutions and digital technology service providers across multiple jurisdictions.
During the panel discussion, the authors advocated for the adoption of digital solutions such as artificial intelligence (AI), machine learning, robotics and biometrics to enhance KYC processes, and the use of shared KYC platforms. Firms that participate in shared KYC platforms, often referred to as KYC utilities, can eliminate redundancies in current processes and improve customer experience. By providing a common, standardized data model and a secure environment to exchange quality customer data, the shared platforms can enhance customer onboarding, screening, and identity verification processes.
The urgent call for optimization of KYC is a direct response to challenges that have made implementing current anti-money laundering and KYC (AML/KYC) controls onerous and costly. For instance, organizations using technology to prevent financial crime are almost twice as successful at performing KYC identity checks (47%), compared to those that do not use technology (28%), according to more than 3,000 respondents surveyed by Refinitiv in a 2019 study. In another survey of 250 C-suite executives, 54% reported that the absence of a single client view of all data and documentation was a challenge during onboarding of a new client or when migrating an existing client to a new product.
According to Mukherjee, financial institutions are increasingly concerned about the long onboarding process, which frequently discourages customers from proceeding with applications, and current manually intensive KYC requirements, which are ineffective at preventing financial crime and often hamper financial inclusion, especially in emerging countries.
While certain jurisdictions have made significant progress on developing and improving KYC shared platforms, others continue to face challenges. According to Maton, platforms must overcome technical difficulties and potential conflicts of commercial interest among participants. He said the continued success of shared platforms will depend on participants agreeing on a governance framework that defines the roles and responsibilities of each stakeholder and a trust framework that spells out how liabilities, risks and commercial benefits are to be shared.
In the Nordic region, six banks have created a KYC shared platform to combat financial crime and cut compliance costs. Maton and Mukherjee point to the Nordic utility as an example of an initiative that is addressing challenges that have previously plagued other shared platforms.
Going forward, the ability to test KYC digital solutions in a supportive environment will be critical. For instance, recent TechSprint events organized in London and Washington, D.C. allowed regulators and financial institutions to formulate and share ideas on several KYC digital solutions, including privacy enhancement technologies (PETs), which would enable the sharing of information about money laundering and financial crime concerns, while allowing institutions to remain compliant with data security laws.
The study provides detailed recommendations for optimizing KYC. Among them, financial institutions are advised to strongly consider KYC digitization as a short-term goal and integration with shared platforms as a medium- to long-term objective, depending on where they are in their digital transformation journeys. Proactive adaptation of a regulatory framework and mechanisms, and the creation of new shared industry assets are equally critical. Although digitally enabled KYC shared platforms are not available across the board in all jurisdictions, the report recommends their continued development, with government support, and their widespread adoption by financial institutions.
The study recommends that regulators develop a collective understanding of the impact of new digital technologies on specific regulatory outcomes and help to foster a competitive marketplace where transformative technologies can be adopted quickly.
For a complimentary download of the study report, please visit here.