Distributed compliance is the key to banks increasing CDD and KYC challenges
The banking sector is well-versed in digital disruption. The ability to harness intelligence and insight to augment the customer relationship and drive faster decision making.
It also has many years of experience in utilising the potential for automation to deliver new efficiencies and banks and financial service institutions have become active adopters of digitisation.
Retail banking is now incredibly technology driven thanks to automated decisions, the adoption of mobile channels, internet of things and artificial intelligence. However, on the corporate side, efforts to create a smooth onboarding process have been rendered futile by the enormous bottleneck of work that is required to meet the strict regulations and know your client (KYC) requirements for transacting with commercial entities.
Much has been written about the challenges faced by financial institutions in meeting client due diligence (CDD) and KYC compliance in a continuously evolving regulatory landscape. But there isn’t too much focus on how to maximise the potential of human and machine working together to address the incredibly disjointed process corporate clients are currently subjected to.
The challenges faced
A lack of consistency in the methods used to collect information about new clients, disparity in the number of contact points required to reach out to a customer (an average of eight according to Thomson Reuters), increased data security requirements, challenges in uncovering material changes within corporate entities, and pressure to crack down and detect nefarious transactions, all combine to place a bright spotlight on risk and compliance functions. These pressures also conflict with an over-arching desire to improve customer experiences.
A transformative change is needed. A strong dose of digitalisation has the potential to both smoothen the onboarding process and facilitate a new era of efficiency in CDD and KYC management within banking.
The term for such change?
Distributed compliance – the future of CDD and KYC
Banks have invested heavily in data solutions and teams of compliance analysts to interpret data. This has been necessary to enable them to cope with the workload created by adherence to KYC. However, the two don’t always work together resulting in relationship managers investing effort winning business only to be delayed, or even blocked, by compliance teams under strict regulation.
Many banks have responded by building solutions ensuring that regulatory and compliance requirements can be adhered to by finding better ways to extract and scrutinise data, but few have looked at how to distribute the workloads these tech solutions create, in order to create a more efficient process for customers.
Distributed compliance recognises that the proliferation of KYC tasks has had a negative impact on a bank’s ability to onboard customers in a timely, orderly fashion, and furthermore that many of the tasks not requiring specialist knowledge can be best performed by other teams.
Distributed compliance involves giving the compliance team control of a sophisticated decision engine to enable data coming in to have rules applied and tasks created. Further, it enables the distribution of these tasks to appropriate staff (according to the rules), monitoring the completion of the tasks and evidencing the whole process.
The automation aspect of this is fundamental as it brings efficiency, consistency and control to the areas it transforms. But more than that, it places compliance at the heart of the business – front of mind for every member of staff, informing every decision, instructing every interaction, and shaping every relationship from conducting pre-screens for new customer prospecting through to long-standing client development.
The benefits are numerous. Reduction in analyst spend, faster and more efficient customer on-boarding and superior customer experiences, improved due diligence, transparency and auditing, and improved efficiency and productivity from compliance teams with more time to focus on work which requires their skill and experience. Bringing me nicely to my next point, human and machine working in unison.
The marriage of art and science
The greatest successes are often achieved at the intersection of science and art. The focus of Sibos this year is exactly that – the opportunity for digitisation and automation to not only drive efficiency but to augment and enhance human skills in order to improve customer experience.
Just as a masterpiece by any great artist requires talent, it also requires a commitment to innovation. Artworks are built using perspective, symmetry, structure, light and shade. Creating next generation commercial banking experiences requires insight, context, objectivity and perspective, design and framework, and it also requires innovation.
Distributed compliance perfectly illustrates the concept of man and machine working in union.
More than simply a fintech solution designed to address a clearly defined need or problem within banking, or an opportunity to automate thankless, laborious or repetitive tasks, distributed compliance suggests that we re-imagine risk management and compliance, enhancing and future-proofing human skill sets whilst intelligently tackling a complex banking issue.
Art and science working together.
By Matt Elsom, vice president of risk at Artesian Solutions