KYC Remediation: Converting the backlog challenge into an opportunity (Luke Hinchliffe)

Increasing regulatory scrutiny often results in businesses having to re-validate their existing customers. The subsequent remediation process can be an onerous task, but if carried out correctly it reduces risk and delivers a far better customer experience.

Over the last decade the rate of regulatory change has increased exponentially.

This year it has been fuelled by the increasing use of sanctions, leaving many businesses with outdated information on individuals and entities that no longer provide the necessary protection from risk.

As a result, regulators across many jurisdictions are now turning their attention to the know your customer (KYC) and customer due diligence (CDD) data of existing customers.

Consequently, businesses are required to subject all their existing customers to a fresh risk-assessment and re-verify their personal details.

The repercussions can be enormous and affect not only the compliance programme, but potentially the business as a whole.

The introduction of new regulations has been known to lead to the widespread de-risking of entire segments, simply because of the time and cost involved in remediating using existing processes.

There have also been instances where access to financial services has been interrupted while customer data is remediated and brought back into line with regulatory requirements.

Dealing with KYC remediation bottlenecks

One of the biggest challenges presented by KYC remediation is that all too often it creates an urgent need to act quickly and decisively.

Especially when a business finds itself in the crosshairs of a regulator and is set a deadline for completion, the clock immediately starts ticking.

As a result of the need for speed, the process of validating and updating data for large numbers of customers can quickly overwhelm compliance teams and create huge bottlenecks.

In order to meet deadlines and avoid financial penalties it often results in a kneejerk reaction, leading to businesses to hurriedly parachuting in teams from management consultancies or business process outsourcing partners.

As well as carrying a significant price tag, bringing in outside KYC analysts can create problems of their own. Often inexperienced and poorly trained, external help may solve the immediate challenge, but creates new problems for the business further down
the line.

Confronting the manual burden of KYC remediation

If in the first instance customers have been onboarded using outdated and inefficient manual processes, the remediation process becomes even more daunting.

Over the passage of time, the greater the volume of potential matches the greater the risk that they will not be cleared, resulting in the build-up of a backlog of unresolved matches.

Backlogs can also be a pre-cursor to disaster as they increase the risk that the business is transacting with a ‘bad actor’. They are also signal to the regulator that the business is non-compliant and can easily lead to a full-blown regulatory enquiry.

This leaves many compliance teams struggling with a remediation process that requires the collation and validation of mountains of customer data; as they try to locate information stored on paper-based documents or buried in a myriad of unconnected data
silos.

Friction is further aggravated as businesses are faced with burdening customers with requests for information, which can damage a previously good relationship.

Without a scalable, digitised, and automated process, this ongoing pattern of fragmented manual onboarding followed by the ongoing challenge of remediation will only continue.

Turning a headache into a golden opportunity

Because your customers’ circumstances are continually changing, the burden of KYC remediation only worsens over time, not only for your business but also for your customers.

But with the right technology in place, you can turn one of compliance’s biggest challenges into a golden opportunity, and deliver the following benefits:

• The effortless onboarding, reviewing, and ongoing screening of all customers
• Reduce false positives by up to 95%, thereby greatly reducing backlogs
• Demonstrate to regulators that your business is doing everything in its power to be compliant at all times
• Employ a 3D risk-based approach tailored to your risk profiles to reduce the burden, especially for the bulk of low-risk customers, enabling ‘straight through processing’
• Improve due diligence through better quality data, including open-source adverse media for a more comprehensive picture of risk for both individuals and entities
• Track remediation status through dashboards and reporting with real-time alerts
• Integrate electronic ID verification (eIDV) so that customers can provide proof of identity in the same web portal
• Implement a self-serve, branded web portal to enable customers to update their information in a secure environment

Putting the customer in the driving seat

Employing a digital-first strategy, will not only make regular KYC refreshes easier, but the customer experience will also improve exponentially.

By providing your customers with more control via digital channels, it enables them to self-verify and update details independently. This greatly improves the quality of your data while empowering your customers.

Regardless of how your customers have been onboarded, it’s not too late to convert the challenges of remediation into an opportunity.