A sign of the current challenges is an increase in the number of businesses that have entered into administration or become insolvent during 2020 - over 13,000 so far, and as we look ahead to 2021 this number is expected to increase further.
A rise in company insolvencies is often accompanied by a rise in changes in the ownership of many other businesses, in order to survive and grow businesses often have to raise money or take on additional directors and no more so when trading conditions are turbulent. This means that often the customer you have today may no longer be the customer you originally signed up to service.
With increasing changes in beneficial owners and business structures regulated organisations need to stay ahead of their obligations to understand the businesses and directors of that business. This coupled with the increasing regulatory changes means that often regulated organisation have to place ongoing remediation, monitoring and periodic reviews at the heart of their compliance strategy.
Whilst KYC remediation is common practice, it has traditionally been a business challenge. In this blog, we explore how best to equip businesses to deliver efficient KYC remediation projects that support compliance, sales and the business as a whole.
KYC/KYB customer lifecycle
Knowing Your Customer and Knowing Your Business cannot not be contained to onboarding. We’ve seen lots of focus in financial services on new approaches improving customer experience based as digital transformation becomes commonplace. The trend over the past four years has been to focus digital transformation on the origination or onboarding processes, however as we extend these programmes to customer management we will see operational efficiency and effectiveness of periodic reviews increase dramatically.
One of the major aspects of KYC remediation, driven by periodic reviews is the identification of client data that is high, medium and low risk and enables a business to prioritise those records that require more immediate action. It is also an opportunity for the business to understand who their customers are and how they can increase customer loyalty and potential upsell and cross sell marketing opportunities far quicker than cumbersome manual processes.
With many compliance projects requiring huge investment of both budget, headcount and time it has been understandable that remediation has often been placed on the back burner waiting for the regulator to call. The internal risk-appetite has a huge impact on the business process and often drives the level of regulatory compliance a business strives to achieve.
However, by taking a proactive approach and using processes instigated at the onboarding stage, and then continuing with higher risk data being reviewed more frequently, remediation resources can be greatly reduced.
Automation of KYC remediation and periodic reviews
The sheer volume of data and ID documents that need to be remediated when performing periodic reviews often presents a daunting task for firms. However, not all customer-data files are equal when it comes to remediation, all firms should be taking a risk based approach to reviewing their customers in terms of the detail required and time taken. High risk clients will be reviewed more often and with greater scrutiny that low risk clients
By automating labour-intensive manual processes on low-risk clients you can significantly improve operational efficiencies, reduce the risk of human error, whilst ensuring that your compliance team focuses on reducing your business risk against heavy fines and penalties.
Investing in an automated solution efficiently re-verifies your client’s data and documentation against multiple sources, and flags which clients are high, medium and low risk. Priority can then be given to the high risk clients which require enhanced due diligence to meet regulatory requirements.
It’s worth reading the speech by Mark Steward, FCA executive director of enforcement and market oversight, delivered at the City & Financial Global Ltd event in London earlier this year. He spoke about the financial penalties imposed in 2019 of over £310m on firms that also paid or are paying over £231m in restitution. He covered two main areas; first, financial penalties and the importance of cooperation and remediation; secondly some observations and issues arising from cases over the last 12 months, especially regulatory cases involving breaches of the General Principles.
Digitally transform legacy technology
Relying on legacy systems and outdated manual remediation processes not only dramatically increases overall KYC remediation project costs and prolongs the project delivery time, but also provides a haven for bad actors to take advantage of any gaps in your compliance processes.
By digitally transforming your compliance functions using scalable and secure cloud solutions, you can facilitate expanded remediation projects, seamlessly handling increasing volumes of client documentation and data into a single view of the relevant data and sources.
Digital client self-service verification solutions
For gathering hard to reach client data - utilising digital self-service solutions to allow your clients to update their own information and upload ID documents at their own convenience also greatly improves the efficiency of the remediation process.
Invest in skilled people for enhanced due diligence
Skilled remediation resources are not easy to find, let alone retain. By providing your compliance teams with a digital solution the laborious tasks can be removed, allowing them to focus on using their skills and knowledge on areas that will ensure employee engagement and deliver complex remediation cases that require enhanced due diligence.
Avoiding future remediation headaches
Delivering effortless onboarding experiences for the customer is a key priority for many businesses, however, if your initial Client Due Diligence (CDD) is weak this will only make future KYC remediation projects more expensive and drawn-out. Poor-quality data-capture is a key driver for KYC remediation later in the client lifecycle.
Ongoing client monitoring
Due to the ongoing pandemic, your clients’ risk status is changing at an unparalleled speed. It is no longer sufficient to re-check your client data when the regulator calls for a spot check or wait for the next remediation project. Client risk is changing rapidly and your business must show the regulator that it has processes in place to identify and remediate client data to reduce the threat of ongoing fraud.
Such rapid changes in the market mean businesses need to invest in ongoing client monitoring tools so they can have real-time alerts on relevant changes to clients’ risk status.
Receiving alerts of changes in company structure, beneficial ownership, directorships, customers and their financial stability through an agile cloud solutions can significantly reduce your business risk and operational overheads.
Want to learn how to deliver effective KYC remediation?
At NorthRow we have worked with leading building societies, estate agents, payments firms and wealth managers to improve the efficiency of their KYC remediation projects; reducing resource costs, improving risk management processes and helping meet regulatory compliance obligations.
Due to the changing business environment, regulated organisations have to place KYC remediation, monitoring and periodic reviews at the heart of their compliance strategy. Download NorthRow’s latest opinion piece to learn more on how to digitally transform your next project.