ATLANTA —In a newly released study, “Do You Know Who I Am? Know Your Customer Systems Market Update,” best practices insight and technology firm CEB gives a report on the current state of know your customer (KYC) systems, beginning with the view that banks have remained stagnant in replacing outdated KYC solutions. The report asserts the following:
“Globally, financial institutions are facing increasing pressures from regulators to meet heightened customer due diligence standards, and as such are periodically implementing new regulatory provisions. At the same time, more and more banks are recognizing the positive impact that effective KYC processes can have on customer onboarding by shortening the amount of time it takes for a customer to gain access to revenue-generating products and services. As a result, we see bank staff allocating more of their time and effort to customer due diligence and onboarding, while also managing ongoing risk review processes,” said Andy Schmidt, principal executive advisor, CEB.
The study goes on to compare and rate leading KYC system vendors, including LexisNexis® Risk Solutions Bridger Insight® XG compliance solution.
Recent regulatory directives, such as the 4th EU Money Laundering Directive and FinCEN’s recent rule on Customer Due Diligence, have focused on beneficial ownership as a required part of customer due diligence. The 4th EU Money Laundering Directive established that member states are obligated to create registries of beneficial owners—supporting financial institutions in ascertaining the true owners of the legal entities with which they do business—while the FinCEN rule established and formalized the required verification of beneficial owners.
While there is currently no comprehensive worldwide list of beneficial owners, the study notes, many vendors do provide integration with the screening process, and leading vendors are incorporating this as part of their out-of-the-box offering, partnering with third-party data sources that provide up-to-date lists of known beneficial owners.
Thomas C. Brown, Senior Vice President, U.S. Commercial Markets and Global Market Development, LexisNexis Risk Solutions, comments: “The FinCEN CDD rule is requiring verification of identity as a way of establishing Beneficial Ownership Verification. In light of this, our Instant ID®, Business InstantID® and Instant Verify International tools are among the best identity verification products on the market, and can be used to verify the identity of beneficial owners.”
The study notes that as regulators move toward tasking banks with identifying not only sanctioned entities, but also the subsidiaries of these entities, the need for accurate and up-to-date reference data will underpin the due diligence process.
“Around the world, a basic ability needed today is to efficiently screen any customer or money flow against a range of highly dependable lists that cover the critical aspects of financial exposure,” says Mr. Brown. “For example, in our recent True Cost of Compliance study, we found that most firms in the Asia-Pacific region have not achieved fast onboarding—only 15 percent can complete CDD for retail customers within an hour, while 35 percent take two to five days. This costs these banks money, and even, in some cases, perfectly valid customers.”
CEB’s study further notes that data sharing services managed by KYC technology providers offer individual institutions a greater pool of insight with which to manage customer risk, by drawing on the experiences and data of an entire network. A shared database provides an opportunity for banks to flag common threats faced by institutions, such as particularly risky individuals or businesses. As banks and KYC vendors work toward this future state, they will continue to be challenged by navigating the complex web of country and international regulations that hamper the transmission of certain data types across national borders.
Mr. Brown observes: “In light of studies like the CEB analysis, I think we’ll see increased mechanisms for financial inclusion. We want to drive financial inclusion in the economies in which we operate and in turn, that will help satisfy the global need for financial transparency. The more you know about the entities participating in an economy, the easier it is to get a view into the whole. I think it’s going to take industrywide and even cross-government action to help with that transparency through data sharing. A Global Customer Due Diligence Utility would afford banks and other participants in the financial economy increased access to transparency and risk mitigation—whether this is driven by government or by industry.”
The cost of KYC compliance is a balance between the need to update technology in order to automate and speed up onboarding operations, and the value that will be brought by KYC solutions, the CEB study finds. Sixty-two percent of bank executives expect spend on KYC to increase by 2017, while KYC solutions rank among the highest value commercial banking technologies, due to their ability to help banks reduce risk and comply with regulations. As banks continue to operate in increasingly complex structural and regulatory environments, solutions that can automate compliance processes will bring value both for their ability to manage risk within the bank and to improve critical customer-facing processes.
Carlos Garcia-Pavia, director of Anti-Money Laundering (AML) Compliance, LexisNexis Risk Solutions, added: “Our award-winning AML and KYC Compliance integrated platform Bridger Insight® XG helps to ensure that bank customers as well as their customers’ customers are efficiently screened in the onboarding process and beyond. Solid compliance doesn’t have to be expensive, and can be enjoyed by small banks as well as big banks—for example, in our recent True Cost of Compliance study, we find that mid-tier firms in the Asia Pacific region spend, on average, U.S. $7.4 million on compliance, less than half of what big banks spend. We believe that a shared Global CDD Utility would also bring down the costs—and risks—for everyone. However, at the present moment, as big banks intensify their processes, if the small banks don’t come along, an undue risk is forced upon them in this environment.”
About LexisNexis Risk Solutions
LexisNexis Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe. We provide data and technology solutions for a wide range of industries including insurance, financial services, healthcare and government. Headquartered in metro Atlanta, Georgia, we have offices throughout the world and are part of RELX (LSE: REL/NYSE: RELX), a global provider of information and analytics for professional and business customers across industries. For more information, please visit www.risk.lexisnexis.com and www.relx.com.