Strategies to Improve Know-your-customer (KYC) Compliance

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Know-your-customer programs are crucial for banks’ customer gains and retention. Despite the robust technologies and processes, KYC results could be more optimal. Improving KYC compliance can add significant value to the business.

Banks today have to spend millions of dollars to know their customers. However, most have yet to use this intelligence beyond the compliance requirement. KYC processes can hamper the customer experience and result in client attrition.

Businesses should implement strategies that improve the KYC processes without compromising customer experience. It is crucial to optimize the data collection quality and apply the right analytics to get valuable insights. Banks can get in-depth customer intelligence through KYC to enhance risk management. Efficient KYC processes boost the customer experience, lower costs, and increase revenue.

Businesses need to understand the benefits of improved KYC processes. Moreover, it is crucial to determine the best practices to overcome the challenges associated with KYC.

The need to enhance the KYC program

Businesses in financial services have been struggling to implement a robust KYC program for a long time. With tremendous evolution in compliance laws, it has added pressure on banks. Institutions in financial services have to reimagine their KYC strategy. They need to embrace efficient solutions and processes to get a competitive edge.

Regulatory bodies are focusing on risk effectiveness

Government; and regulatory bodies are shifting their focus on risk effectiveness and innovation. It forces banks to improve their risk coverage and mitigation strategies. Regulatory bodies expect banks to automate manual processes to minimize human errors. Decision makers need to reimagine their business offshoring and outsourcing strategies. Moreover, it is crucial to identify and seize opportunities for utilities.

  • Customers expect B2C-like experiences 

Customer expectations and needs are constantly changing as the market evolves. Clients today expect speed, convenience, and accuracy. Businesses today are exploring opportunities to optimize KYC compliance without compromising on security or customer experience.

  • Poor data quality

Businesses today need better-quality data, which hampers their KYC compliance. Improving customer data quality to improve adherence to KYC compliance is crucial. The best banking institutions should strive for a holistic customer view with quality data.

  • Higher costs and reducing budgets

The cost related to KYC compliance is increasing tremendously with time. Additionally, stakeholders are reducing the budgets amid the economic turmoil. Hence, banks must ensure they have invested in tools, data, and analytical capabilities. It is crucial to make the right tech investments to scale sustainably.

Best practices to optimize KYC verification 

Best practices to optimize KYC verification 

There are various strategies that decision-makers can consider to improve their KYC compliance. Here are a few best practices that businesses can consider:

  • Get a holistic view of the entire data lifecycle

Every institution in the financial services sector needs to understand the trick to manage financial crime. Even the best banks globally are prone to KYC risks and threats. One of the crucial factors before embarking on the journey to KYC compliance success is data strategy.

Businesses need help deciding between centralized versus federated data control. They are still trying to explore which works best for them. A few industry experts suggest centralizing financial crime data because it is valuable.

Enterprises with a centralized data strategy can connect the insights from multiple data sets. It will offer banks a competitive edge in combating fraud and financial crime.

Institutions in the financial service sector can consider the financial crime lifecycle in the following four stages:

1. Compliance 

During the compliance stage, businesses can design and enforce governance structures. Additionally, they also need to implement the best strategies to combat crime.

2.Prevention and identification

Decision makers must conduct an enterprise fraud management test, including advanced analytics. It is crucial to identify the potential KYC risks and implement the best strategies to prevent them.

3. Investigation and mitigation

Evaluating flags, adhering to the regulatory needs, mitigating issues, and preventing recurrence. This stage is crucial to investigate issues and mitigate them.

4.Tracking and reporting

Banks must evaluate, update and report the KYC compliance risks at this stage.

The best banking institutions are managing to access data at multiple touchpoints in real-time or near real-time in that cycle. Businesses today do not allow it to pass through the workflow and report it later in the lifecycle. Banking institutions are focusing on identifying KYC issues right from the start to avoid disruption.

  • Embrace automation 

The traditional ways to achieve KYC compliance have become obsolete and tedious. Businesses can access data from multiple systems in real-time by embracing the new KYC compliance strategies.

For instance, banking institutions can use process mining technology. It is an efficient technology to accelerate a workflow post an analytics system identifies a potential risk. Process mining technology will also determine other operational spots where friction lags the workflows.

Embracing automation is an effective way for clients and banks to get quicker results.

Data fabric technology also plays a significant role in optimizing KYC compliance. A data fabric strategy has a virtualized data layer on top of all bank systems. It allows resources to access data from any source in the organization. The central systems store the data, but the banks get a holistic view.

This approach will enable banks to overcome data siloes without replacing traditional systems. It is crucial to consider because banks can only replace some of the legacy technologies.

Banks need to have a strategic digital transformation plan. This approach is crucial to replace their legacy technologies without impacting the current operations. Moreover, businesses need to have better data integration technologies to optimize their KYC compliance processes.

Also Read: The Importance of RegTech in Ensuring Fintech Security and Compliance

  • Focus on orchestration and reusable workflows.

Banking institutions utilize multiple niche software solutions like sanction screening applications. They use these tools for their specialized requirement to prevent financial crime.

The financial sector also has access to technologies like artificial intelligence (AI) & machine learning (ML) tools. These tools enable businesses to get better customer insights and identify patterns in all the data. Organizations need to seamlessly integrate technologies that fit the need of the current tech stack.

Decision-makers need to select disruptive tools that felicitate accurate decision-making. A process automation platform with data fabric functionalities will help to orchestrate those tools. Reusing workflow aspects accelerates the process, resulting in improving KYC compliance quality.These are the strategies that a bank’s compliance officer can consider to improve KYC compliance.

Nikhil Sonawane
Nikhil Sonawanehttps://talkfintech.com/
Nikhil Sonawane is a Tech Journalist with TalkCMO. He has 4+ years of technical expertise in drafting content strategies for MarTech, Marketing Automation, and Customer Relationship Management (CRM). His Commitment to ongoing learning and improvement helps him to deliver thought-provoking insights and analysis on complex technologies and tools that are revolutionizing modern enterprises. He brings his eye for editorial detail and keen sense of language skills to every article he writes. If he is not working, he will be found on treks, walking in forests, or swimming in the ocean.

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