Financial crime compliance management starts with efficient Know Your Customer (KYC) processes to ensure that banks fully understand their customer relationships.
New requirements and regulations put increasing pressure on banks to update processes and ensure end-to-end compliance. Anti-money laundering (AML) software for banks eases this pressure and enables compliance teams to simplify the complex regulatory obligations.
Legacy systems can limit growth, impact customer experience and profitability, and expose banks to risk. Learn about why banks need to utilize RegTech solutions and the benefits they offer in our comprehensive guide.
Banks and financial institutions face an increasingly complex regulatory landscape when it comes to AML.
The growing adoption of mobile banking, innovations in payments and cryptocurrency have transformed the way individuals and organizations process transactions and created new challenges associated with compliance, risk and reporting.
In response to this changing market, regulators are demanding more clarity and insight from banks and financial institutions regarding their customer relationships, activity and risk management processes. These processes create significant amounts of new work for already stretched compliance teams, creating a need for a more efficient approach to AML and KYC processes.
To keep pace with the changing demands of the market, banks will need to adopt digital solutions that can deliver the detail, speed and accuracy required by regulators and consumers.
Every development in financial processes and markets is swiftly targeted by criminals as an opportunity for fraud or to help hide illegal funds. Advances in technology have only flamed the fire - global losses from payment fraud tripled from USD$9.84 billion in 2011 to USD$32.39 billion in 2020.
As the risk of fraudulent activity increases, new regulations have set a higher bar for accountability and oversight from banks. This includes holding more detailed records on customer relationships, regularly refreshing client profiles and updating databases as and when regulation inevitably changes.
Encompass CEO and co-founder, Wayne Johnson, shares his views on the need for a “universal” approach to regulation.
As technology advances, new opportunities for criminals to exploit systems emerge. Regulators are putting banks under increasing pressure to apply more scrutiny to customer relationships. Recent regulations include FinCEN’s CDD “Final Rule”, the Anti-Money Laundering Act of 2020 (AMLA 2020) and the EU’s 4th, 5th and 6th AML Directives, which require a broader view of customer activity within the financial system. This includes increased transparency about who really owns companies and other financial entities, clarifying financial structures and determining associated parties or “enablers'' of financial crime.
Falling behind on these compliance requirements leaves banks vulnerable to significant penalties, with authorities in the US, Europe, APAC, and the Middle East levying nearly USD$26 billion in penalties against financial institutions for AML, KYC, and other violations over the past decade.
So, what about the role of AML software for banks? Comprehensive AML compliance can be achieved faster and more effectively with RegTech solutions, and banks and financial institutions are increasingly embracing the technology.
By using targeted solutions to streamline the more time-consuming elements of manual due diligence, banks can free up time currently spent on repetitive processes and enable teams to focus on more complex issues and end-to-end control. The ability to stay ahead of these regulations by using the right tools has a material impact on bank valuations, putting those with a fully-implemented technology strategy ahead in the market.
AML and KYC processes are an essential protection for banks to manage risk and shield the organization from fines and personal liability.
A fully comprehensive AML process will usually involve:
The processes companies or institutions conduct to verify the identity of potential customers before providing them with services and/or products. This will include identity checks, UBO verification and background checks.
Making a judgement on the risk posed by a client for the bank based on their activity, relationships and business activity.
Given the changing nature of financial markets, banks are expected to regularly review and update their customer records through KYC refresh at periodic intervals depending on their risk-based profile.
Traditional KYC and AML compliance processes involve multiple teams working together to create a complete profile of a prospective customer at the onboarding stage. Hours of work go into manual processes and at any stage, a client could be off-boarded for any number of risk or compliance reasons.
By moving to a digital KYC process flow, powered by AML compliance software, banks can minimize time spent on manual processes and streamline data management while also increasing the accuracy and relevance of their customer information and reducing risk.
Automation is a key tool for optimizing your KYC workflow and improving efficiency. Find out the quick-wins and opportunities you can take advantage of in our blog.
Efficient KYC processes and robust due diligence are the foundations of AML compliance. KYC helps banks to get the full picture of prospective customers, gathering and checking all relevant customer information to accurately assess financial risk exposure. The processes involved in KYC are also key components of AML regulations. Banks are being held to account for fulfilling their mandated obligations to help fight financial crime and identify suspicious and fraudulent activities.
KYC processes cover various aspects of the AML compliance. Compliance teams build a complete picture of the customer and relevant business relationships through submitted information, third-party searches and verification. Below we outline key AML and KYC requirements for banks.
Financial crime compliance and management starts from the beginning of the client relationship, at onboarding. This is the stage where banks carry out preliminary checks to quantify the risk posed by the client/customer and aim to create a full view of the entity with whom they intend to do business.
Key stages include:
Find out how leading institutions are using digital software to streamline their KYC processes at scale.
The goal of customer due diligence (CDD) is to gather all of the relevant information about a prospective customer to accurately assess risk, and then updating that information at periodic intervals throughout the customer lifecycle.
Some customers will be subject to additional enhanced due diligence (EDD). This aims for a greater level of scrutiny of potential business partnerships and highlights risks that cannot be detected by customer due diligence. EDD is specifically designed for dealing with high-risk or high-net worth customers and large transactions.
To protect the institutions from reputational damage or risk, it’s essential to verify whether potential customers are compromised by any known illegal activity. PEP, sanctions and adverse media screening helps to identify sanctioned individuals, politically exposed persons (PEPs) and uncover any known illegal activity to which the institution may be exposed.
Verifying ultimate beneficial owners (UBOs) is an essential first step in determining the risk and reliability of a new prospect by determining who ultimately owns or controls a customer and/or the natural person on whose behalf a transaction is being conducted. This may involve unpacking many layers of ownership structures and can be extremely time-consuming when performed manually.
KYC processes go beyond traditional customer onboarding, requiring a long-term view of customers’ activity and regular updating of information to ensure that banks are maintaining compliant records throughout the client lifecycle. This includes updating customer information to ensure it remains accurate, as well as updating records in line with new regulation and retaining full AML data attribution lineage for demonstrable compliance.
The evolving demands of KYC create a range of challenges for banks and compliance teams, especially those still working with legacy systems and manual processes. Here are some of the key KYC challenges for banks:
These challenges are leading many banks to invest in RegTech software and intelligent process automation to balance compliance costs, efficiency and customer service.
The rise of RegTech in recent years has seen more anti-money laundering software solutions become available to compliance teams to streamline their KYC processes and due diligence workflow.
In response to the increasingly complex needs of AML compliance, more digital tools are appearing on the market to improve legacy processes and systems. Here are some of the capabilities that AML software solutions can offer banks:
With many compliance teams facing serious efficiency challenges in remaining on top of workloads, automation tools are used by banks to manage time-consuming, manual tasks such as data collation, profile management and identity verification.
For data to be valuable, it has to be accessible between teams, systems and locations. API connections enable banks to instantly transfer information between platforms with full security and control.
Given the large amounts of data processing and repetitive tasks involved in KYC due diligence, automation software is an essential tool for managing, structuring and transferring information between systems. This is aided by connections to trusted KYC data sources to analyze and unwrap complex corporate ownership structures.
RegTech automation solutions are designed to address the key issues banks and financial institutions face when trying to remain compliant in an increasingly competitive and complicated market. These tools not only improve customer experience and efficiency but reduce risk by sourcing accurate information faster with less risk of human error.
Here are some of the key AML and KYC processes that can be automated:
By connecting to global corporate registries and electronic ID verification data, you can automate customer checks with full peace of mind.
With automated database searches, complex Ultimate Beneficial Ownership (UBO) structures can be collated in seconds, dramatically improving ROI.
RegTech can help organizations minimize risk exposure by screening entities against trusted suppliers of PEP, sanctions and adverse media data.
By using smart systems to continuously monitor customer KYC profiles for material changes, banks can instantly catch opportunities for information review.
Digital KYC profiles can prove end-to-end compliance to regulators with a dynamic audit trail of every KYC/AML action for real-time updates.
Find out where automation can make a reduce the time and cost of KYC processes, and where human analysis is critical.Read the blog
The growing regulatory burden placed on compliance teams is leading financial institutions to embrace AML RegTech to streamline their compliance processes.
The global RegTech market is estimated to be valued at US$7bn in 2021 and is expected to reach US$15.8bn by 2026, growing at a CAGR of 17.5%, as financial threats become more complex and widespread.
Software needs will vary for different organizations, depending on the customer profile, risk appetite and existing level of software implementation. The first step in banks choosing the best anti-money laundering software is assessing the strengths and weaknesses of your existing AML and KYC process. By implementing the right software, you can enjoy a range of benefits, including reduced compliance costs, improved customer service, reduced risk and faster growth.
As regulations become more complex and stringent, does ensuring compliance present a burden or do regulations benefit banks? Find out in this webinar.
As the demands placed on compliance teams by regulators and risk management increase, banks working with legacy solutions are struggling to maintain growth targets while focusing on being fully compliant with AML regulations. This exposes banks to unnecessary penalties, reputational risk and inefficiencies.
Automation software for AML can ease the burden on your teams as regulations change and enable you to continue to operate efficiently. To ensure that you can maintain compliance alongside your bank’s growth and customer experience targets, you need to embrace the benefits of KYC and AML automation to future-proof compliance.
Financial market conditions and regulatory context surrounding AML compliance evolve rapidly, forcing banks to regularly update client information to ensure it remains relevant and accurate. Any change in customer circumstances or AML policy must be registered and updated across all existing customer profiles through the process of KYC remediation, greatly increasing workload for compliance teams. KYC automation significantly reduces the time required for remediation.
When working with regulators, the safest way to demonstrate compliance is a clear, accurate and consistent audit trail. When it comes to getting the full picture on each customer during KYC onboarding tasks, the importance of a reliable audit trail – which is central to any compliance program – becomes apparent.
Audit trails compiled manually are both extremely time-consuming and can leave the process open to error, but using technology solutions can make for a much more effective process. By establishing a thorough and accurate automated process, a dynamic digital audit trail, information can be found instantly and used as proof that all required and relevant checks have been carried out.
The increasing importance of ongoing monitoring for AML is leading financial institutions to look to perpetual KYC (pKYC), an ongoing approach to KYC due diligence based on the dynamic refresh of customer data in response to key triggering events. In comparison to the more traditional, reactive ways of updating KYC information, pKYC solutions focus on building adaptive KYC processes that can evolve with business needs, regulatory requirements and risk profiles.
In this whitepaper, learn how current regulatory pressures and RegTech innovations have created the potential for perpetual KYC.
Encompass is a market leader in KYC automation and AML compliance software that create end-to-end value for banks and financial institutions.
Bringing together automation, global data sourcing, screening and lifecycle customer profile management, Encompass empowers your team with the tools, information and confidence needed to scale your business effectively and compliantly.
We help leading institutions across the world meet their regulatory obligations with flexible automation software that can quickly adapt to changes in risk management and AML compliance. Encompass empowers banks to operate an efficient end-to-end KYC process. Our powerful automation tools reduce time required for KYC activities and minimize human error, giving your team more time to focus on delivering value for your business and its customers.
Encompass automates time-intensive, manual due diligence processes undertaken by KYC teams to streamline onboarding and compliance. Our anti-money laundering software for banks gives compliance teams instant access to a vast array of trustworthy global data sources to offer significant time and cost savings, and reduce regulatory and reputational risks.
Encompass addresses the key issues banks and financial institutions face when trying to remain compliant in an increasingly competitive and complicated market. Below we outline some of the key benefits of our digital KYC solutions:
Combining cutting-edge software, deep industry expertise and years of experience, we analyze existing KYC and AML compliance processes to find opportunities for improved efficiency, service and risk management. Our customers include respected corporate, business and challenger banks across the sector.
Find out how Encompass is working with some of the world’s most innovative challenger banks to help them stay on the cutting edge of financial innovation.
Encompass provides AML software for banks and leading financial institutions across the globe. Watch our video below, in which representatives from Santander discuss working with Encompass and how our digital solutions have transformed the bank’s customer onboarding process.
To learn more about the impact we’ve created for businesses with our KYC automation platform, check out our AML software case study library.
Our AML software specialists and KYC experts work with top innovators, institutions and data partners to analyze processes, find opportunities and implement the right technology to help organizations find a competitive advantage and bolster their compliance capabilities.
If you’d like more information about any of the topics discussed on this page, including anti-money laundering requirements or software implementation, get in touch with the Encompass team.
If you’d like to book an in-depth session with Encompass to discuss how our anti-money laundering software can help you stay compliant and competitive, you can request a free consultation tailored to your specific business needs. Just fill out the form below.