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4 Ways KYC Banking Regulations are Shaping the Future

  • June 25, 2019
  • 4 minutes read
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Know Your Customer (KYC) regulations are vital for the banking system. Money laundering, depositing proceeds of crime/corruption or funding terror activities, are some common ways of abusing banks. KYC Banking regulations are complex, they also vary from country to country. Criminals constantly work to outsmart the system, therefore, the regulations have to evolve rapidly. This article looks at the evolution of KYC and what to expect in the future.

Why KYC Compliance is so Difficult!

The costs of complying with KYC regulations are high. Major financial institutions spend around $500 million every year on KYC compliance. This also lengthens the time for onboarding new customers – months in many cases. These extended wait times cost the banks dearly and frustrate clients. Customers expect swift and effortless services. If the process is long the customers do not hesitate to walk. 

Banks need to speed up the compliance process. Modern technology is helping achieve that. KYC services integrated into the banks’ normal compliance process can shorten processing times. 

Modern Trends in KYC 

Let’s look at four trends in the KYC process in banks, and how modern tech is ridding us of paperwork;

  1. Financial Crimes will Trigger Stricter Regulations

When media exposes corruption lurking in the shadows, it serves as an impetus for more stringent financial regulations. This effect multiplies if a notorious politician is involved in a money laundering or tax evasion scandal. Panama and Paradise Papers leaks, the Russian Laundromat scheme, Danske bank revelations in Estonia, and many similar ‘gates’ have contributed tremendously towards tighter regulations.

2. More Transparent Ownership 

FinCEN CDD Rule and the 5th Money Laundering Directive (5MLD) require banks to identify and verify the beneficial ownership. Nonetheless, banks rely too much on collecting ‘beneficial ownership information’ from clients through age-old paperwork. This takes up too much time and involves frequent back and forth movement of forms. Naturally, many data inaccuracies slip in the process this way.

Many countries are creating public records according to 5MLD with the help of technology. Remove the paperwork, manual entry, and verification, and the processing time reduces significantly. Data Science that uses Artificial intelligence (AI), machine learning, and other technologies, are making their way into the compliance process through RegTech (regulatory technology). 

3. Data Science will improve KYC 

Banks have a huge amount of data, which is difficult to manage. Siloed or lose KYC processes create duplicates, mistakes, cause low quality and delays. Among other solutions, APIs, third-party services, and robotic process automation are leading to better KYC research. In the future, this process will further improve. Data Science will utilize artificial intelligence systems and machine learning to collect, process and communicate data. This trio is improving KYC, the future looks promising.

4. Streamlined Process through Automation

Currently, there are plenty of services helping banks automate KYC compliance. In the future, managing data without artificial intelligence would be akin to going to a sword fight without the sword. For example, a state of the art solution for KYC compliance is an anti-money laundering AML check at the inception of the account. Artificially intelligent verification can check across all major black and greylists plus politically exposed persons PEP list in seconds. Then, it can accept or reject the application accordingly.  

Criminals are getting smarter. They have to, since they must devise new ways to cheat the system. The regulations have to match if not exceed such wicked schemes. Regtech is helping banks to catch criminals. Technology is offering better flexibility and compliance for banks. Often times people misunderstand KYC, assuming that it is one absolute and complete system applied in every financial institution in exactly the same way. That is not true. Every business needs a strategy to ensure that technology actually helps it rather than complicates its operations.

Banks are using Artificial Intelligence for Compliance

Onboarding is key to a banks’ progress and sustainability. Automation, data science, machine learning, and artificial intelligence solutions are making KYC Banking more efficient, despite constantly shifting regulations.