Financial Services organizations—banks, credit unions, lending organizations, investment firms, etc.—are subject to a complex regulatory environment, not only to protect sensitive customer information, but also to protect the organizations against fraudulent activity like identity theft and money laundering, and prevent their money from winding up in the wrong hands.KYC, or “Know Your Customer”, is an international compliance obligation for financial institutions, and is a legal requirement for financial services companies to establish a customer’s identity and identify risk factors. Managing KYC procedures can pose complex challenges for financial institutions, but when managed effectively, can ultimately deliver great value for the whole organization.
By implementing the right KYC process management solution and leveraging modern technology to streamline complex, mandatory compliance processes, financial institutions can improve customer experience and transform what can quickly become a pain point for internal and external stakeholders alike.
What is KYC?
The origins of KYC stem from the 2001 Title III of the Patriot Act, to provide various tools to prevent terrorist activities. The policy has since become an international due diligence process used to define and identify customers, manage banking transactions, and monitor customer risk while maintaining compliance. Failure to meet KYC requirements can result in steep fines and penalties for financial institutions.
Financial institutions can more accurately pinpoint suspicious activities by verifying a customer’s identity and intentions when the account is opened and then monitoring transaction patterns.
To meet KYC requirements, clients must provide proof of their identity and address, such as ID card verification, face verification, biometric verification, and/or document verification. Examples of KYC documents may include a passport, driver's license, or utility bill.
KYC is critical for banks to establish customer risk and decide whether the customer can meet the institution’s requirements to use their services. It’s also a legal requirement to comply with Anti-Money Laundering (AML) laws, and ensure clients are not engaging in criminal activities.
Adhering to the range of new and evolving compliance regulations creates added challenges for banks and increased workloads for compliance teams, with issues including:
- Traditional manual compliance processes lead to excessive costs and resources that teams may struggle to match
- Comprehensive security checks require more data collection and input from customers, which can add friction to the customer experience.
- The added workloads for stretched compliance teams can increase the likelihood of human error, leaving banks exposed to penalties from regulators.
To streamline these processes and save compliance teams added cost and resources, financial institutions must invest in modern solutions adapted specifically to their needs and use cases.
3 Steps to Effective KYC
1. Collect and Protect PII
When opening a bank account, the first step is to collect the applicant's personally identifiable information (PII). The applicant will provide their information, including full name, date of birth, social security number, driver's license number, etc. via an external portal online. Documents collected and generated must be archived in a probative manner. This involves anonymizing the applicant's PII to ensure optimal protection in the event of a security breach.
Features like search and redact can help to streamline document protection processes by enabling automatic redaction of PII, simply by entering the applicant's information once, and eliminating tedious manual processes.
Additionally, the KYC procedure requires regular updates of customer information, which means customer information must be reviewed regularly as well. Granular redaction rights help ensure that only individuals entitled to do so can de-anonymize documents.
2. Streamline Due Diligence
Banks and financial institutions but first determine whether a potential customer is trustworthy, which requires carrying out due diligence to mitigate risks. To do so, banks and FIs must source and verify more information than ever before. This means that these organizations must have fast, easy access to an array of information sources and document formats on demand. Non-standardized data formats as well as duplicate or incomplete information can lead to greater chances of error, along with increased cost and resources for compliance teams conducting manual reviews.
Compliance management solutions can help streamline review processes, while document viewer technology can quickly display any incoming document format and compare it with the information transmitted by the applicant.
Once the applicant's due diligence has been verified, the risk categorization and legal check processes take place.
3. Advanced Monitoring + Reports
It’s not enough to verify a customer once. It’s important to have tools in place to monitor your customer on an ongoing basis. Ongoing monitoring includes oversight of financial transactions and accounts based on thresholds developed as part of a customer’s risk profile.
Continuous monitoring means financial institutions must monitor their client’s transactions on an ongoing basis for suspicious or unusual activity. This step embraces a dynamic, risk-driven approach to KYC. Compliance process automation platforms can monitor activity on an ongoing basis and generate advanced reports automatically, to minimize manual workloads, and ultimately improve data quality across all compliance processes.
Accelerate KYC with Document Viewing
Protecting sensitive customer data and meeting compliance and privacy regulations are critical when managing loan cases and financial institutions can find themselves overwhelmed by the volumes of documents to be vetted from different sources.
Standard Enterprise Content Management (ECM) solutions may provide basic compliance management features, but document viewer solutions like ARender can facilitate easy access, workflow management, and monitoring capabilities for streamlined KYC management from end to end. By allowing for fast, streaming access to any document format from any source system, compliance officers can conduct due diligence in a timely manner, while automatically protecting sensitive customer information from third-party sources. Automated workflows can help reduce the possibility of missed information when reviewing a potential customer while allowing for secure collaboration to flag missing or incomplete information directly within the platform.
With ARender’s high-speed streaming technology, compliance teams can quickly and securely exchange information with other auditors while embedding automated redaction features to ensure KYC compliance at all times.
Boost Your Bottom Line
As the complexity of KYC compliance and risk management grows, KYC efficiency is becoming an increasingly critical axis of improvement for financial institutions. Those who can embrace the benefits of a high-speed, modern solution to help streamline KYC will be able to create end-to-end customer and stakeholder value through efficient processes and improved customer experience, all while keeping data secure and mitigating risk.
By enhancing an existing compliance management ECM system with advanced document viewer technology like ARender, financial institutions and compliance managers can transform cumbersome, high-stakes processes into efficient, automated workflows with dynamic auditing and reports. By adopting the right solutions to quickly deliver against customer demand while meeting tightening compliance requirements, financial organizations can build longer-lasting relationships for maximized success.
For more information, visit https://www.arender.io/solutions/banking