Using Automation to De-Risk the Onboarding Process in KYC

Katherine Manning August 25, 2021 Banking

KYC

Manual onboarding is a bank’s highest-risk KYC process with the lowest rate of return. Automation can remove these hazards by taking on the responsibility of performing the grueling legwork.  In this article we break down KYC process steps to identify which areas will benefit the most from automation.

Initial customer touchpoint

This is the starting point of a potential relationship with a new customer.  It includes two important steps: client identification and risk assessment.

Identification

Banks can waste significant time trying to identify the correct legal name of the client.  If a sales manager records this incorrectly, it can result in costly non-compliance.  Further, there is a lack of understanding around the front-end for opening corporate accounts. It’s easy for a banking relationship manager to mistakenly use the wrong entity name; a local company may operate under a Doing Business As (DBA) name, or operate as a division of a larger holding company. With the right automation steps in place, you can unite various profiles under a single customer name and eliminate this common confusion.

Risk assessment

Using customer-provided documentation and information, banks must determine an initial risk rating of high, medium, or low. Information may include documents of company incorporation, shareholder data, or something else. Analysis of this top-level information determines the next steps. Not all prospects will be high risk, but due
diligence is necessary at the beginning to avoid hefty fines later.

Due diligence

Due diligence requires several steps, all prime candidates for KYC automation. The manual approach requires large teams of analysts performing error-prone tasks by hand. The process can overwhelm banks with limited resources and time.

Ownership structure

Analysts have to dig into subsidiaries and corporate structures to identify the owners. The process requires multiple sources, and if the corporate client operates globally, it can take several databases. These steps can take hours and even days. Automation can perform these steps in mere minutes.

Verifications

Is the customer honest about who they say they are? Do their profiles match their passports, government-issued IDs, bank statements, and utility bills? How long will this take to verify manually? Automation can speed it up by auto-filling and automatically routing forms to the correct locations. In terms of risk screening verifications, there are two basic checks:

  • Identifying politically exposed persons (PEPs): These VIPs, known as PEPs, are connected to someone in a position in power or have a significant public function themselves. Financial experts consider PEPs high-risk individuals because they are valuable targets for criminals. Banks invest more resources into evaluating these individuals, and often require access to premium data sources to do so. Further, the definition of a PEP varies by jurisdiction, and each jurisdiction may only provide partial information. Automation can lend a helping hand by automatically scanning these databases to compile the necessary background information.
  • Checking for sanctions: Is the customer on any sanctions lists? This type of information isn’t available through a simple Google search. A complete view of the corporate hierarchy is necessary. For instance, a local division may appear clean, but the parent company is not.

Report building

Often, to properly evaluate a high-risk customer, banks convene a committee of top-level decision-makers.  Banking executives want a comprehensive report provided by analysts so they can make confident, data-driven decisions.  Automating the compilation of these dossiers helps save time in contrast to the manual approach.

Risk rating

Once a bank has collected all the required data, analysts can make better decisions on the actual risk level before proceeding with onboarding. The end rating also determines how much monitoring the account will need. Using automation, you can assign certain processes to a customer account depending on their final risk level.

Establishing an audit trail

To meet regulatory requirements, you must create an audit trail thoroughly documenting every step taken to verify a potential customer. Imagine trying to make a paper audit trail. Where would you store all the documents? What happens if they are lost, stolen, or damaged? Invariably, establishing a manual audit trail is time-consuming and tedious. On the other hand, automation can assist this form-heavy process by automatically collating a history of every action taken. This iron-clad dossier fortifies your financial institution against investigations from regulatory bodies.

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