Is there a silver bullet for KYC?
Authored by: Arjen Koomans, Managing Consultant, Synechron Business Consulting
Financial institutions are facing increasing costs, customer experience challenges and regulatory demands when it comes to Know Your Customer (KYC). These challenges are negatively affecting businesses, and financial institutions are seeking new solutions to address the growing complexities and challenges associated with KYC. New technology can help to get control over cost and improve workforce efficiency, but it is not a silver bullet. Benefiting from the gains and efficiencies of new technology requires that data, workflow and risk management are aligned and optimized in a clear KYC framework.
Increasing complexities in KYC
Financial institutions are caught between 3 challenges: pressure to lower cost, strengthen regulatory compliance and improve customer experience:
KYC costs are significant and increasing – for example, JP Morgan spent £1.6bn on their Compliance Department, employing 13,000 staff, and a Thomson Reuters survey in 2016 across 800 Financial Institutions delivered a clear conclusion: cost and complexity of KYC are rising and negatively impacting business. Additionally, fines are eating profits. Banks globally have paid $321 billion in fines since 2008 for regulatory failings from money laundering to market manipulation and terrorist financing, according to data from Boston Consulting Group. With costs increasing, as well as fines being given out for non-compliance, the key challenge for banks is to reach a stage of growth without adding additional costs.
At the same time, regulatory pressure is increasing. Both legislation, as well as monitoring by regulatory bodies, is has become much stricter. International operating companies find it more challenging to interpret, align, and implement the various and sometimes contradicting local KYC requirements.