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Banks and Financial Institutions are no strangers to risk and compliance regulations. While advancements in technology have improved the processes in place to avoid common activities such as data breaches and money laundering, fraudsters are still able to slip through the cracks which poses the question, “how well do you really know your customer?”

Know Your Customer

In the financial world, knowing your customer is not related to customer needs or experience. Instead, Know Your Customer (KYC) refers to control processes that are put in place by Financial Institutions (FIs) to identify and verify a customer’s identity when opening an account and periodically over time. Furthermore, it provides a way for FIs to identify and avoid customer risk while also ensuring that they are legally complying with Anti-Money Laundering (AML) laws. Not complying with KYC-AML laws is financially reckless and potentially could lead to reputational damage. In fact, between 2008-2018, the global fines and sanctions FIs were issued was over $27.2 billion. While heavy fines and sanction amounts should be enough to comply with these regulations, by adhering to these laws there is an added bonus of reducing waste and improving business outcomes to prove to internal and external stakeholders that there is reduced risk and refined control.

As the vital first step to improving internal process and business outcomes, KYC requires several specific checks and actions during the customer onboarding process to not only be effective, but also to protect FIs from costly financial activities. These measures include establishing the customer’s identity, identifying the nature of the customer’s business and assessing money laundering risks associated with that customer. While onboarding new customers is the most important component of KYC-AML, the problem is that despite many things being automated, there are still too many manual activities and an extensive customer due diligence that is needed. Because of this, it takes almost all FIs too much time, between 90-120 days, to onboard new customers. And despite automations, there is still too much human interaction needed which leads to too high of costs therefore wasting time and money. Effective time management and cost are not only a reality for FIs, but they are also the number one reason why customers take their business elsewhere. According to Thomson Reuters, 85% of customers have not had a good KYC experience and 12% have changed banks as a result. KYC-AML is directly correlated to operational excellence and to have the most cost/time efficient and effective processes, FIs should investigate solutions that provide Governance, Risk, and Compliance (GRC) management software.

Technology as a Solution

GRC is a management that focuses on governance, risk and compliance, and while KYC-AML does have a heavy focus in risk and compliance, governance plays a bigger role than might be expected. This is because understanding how the governance of processes and activities behind KYC-AML are put into place defines what needs to be done, why and specifically how. GRC is a sweet spot of the Mavim platform--facilitating BPM/BPA with operational excellence and governance themes to ensure cost and time effectiveness and efficiency. Mavim focuses on organizations with hundreds, if not thousands, of processes which define, assess, and give insight into the risks and corresponding controls related to these processes and based on the requirements of specific laws and regulations. More specifically, because Mavim provides solutions for both GRC and BPM, users can gather insights on how processes run and why, not only by design, but also based on facts by process mining functionalities which shows deviations and/ or ways for improvement. Therefore, the level of Straight Through Processing (STP) can be raised and the definition of requirements of what can be automated, either by RPA or in designated systems is also possible. Finally, defining what needs to stay as manual activities and why also ties back to the governance of processes which can be visualized within Mavim.

By utilizing a software as a solution, FIs can refocus their efforts in a more streamlined approach, ultimately reducing risk and improving business outcomes. This will ensure significantly less worry about fines, sanctions, and costs of refunds while also reducing the workforce needed for KYC-AML. Additionally, the costs and time associated to customer onboarding will be reduced, which will in turn raise retention rate and reduce churn due to improved KYC processes. Perhaps the ultimate goal has also been achieved, in which internal and external stakeholders will be able to see that the right processes and measures have been taken to put controls in place, proving a higher level of compliance and an overall improved organization of processes.

 

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