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KYC Costs, Complexity and Failures are Rising

KYC Know Your Customer

KYC (Know Your Customer) is not just a compliance issue anymore. It’s a fundamental, bottom-line concern that impacts the number of banking clients, costs, margins and total profits. In terms of human resources, senior management is spending increasingly more on time on KYC and Customer Due Diligence (CDD), staff is getting bogged down on fulfilling compliance requirements, and customers are getting frustrated due to delays and difficult onboarding processes.

Few bankers will be surprised to learn that regulatory compliance costs are going up, but they may be surprised to learn that most corporate customers think they are doing a poor job at collecting and maintaining the information regulators require. Eighty-nine percent of corporate customers said they did not have a good experience with their banks’ KYC processes and 13 percent have changed banks as a result, according to a Thomson Reuters KYC global survey.

Banks that have a positive and efficient onboarding process could gain a competitive advantage, Thomson Reuters said. However, the survey also showed that the first step for financial institutions is learning how customers experience their KYC processes.

Some Financial Institutions Don’t Have a Clue

Many of the nearly 800 financial institutions from around the world who participated in the survey said enrolling new corporate customers has grown more difficult and certainly takes longer. Onboarding time had increased by 22 percent from last year and is expected to go up another 18 percent next year. It’s already a slow process that can stretch out for months. Thirty percent of corporates said onboarding already took more than two months and 10 percent said it took four months.

Banks told the survey they had an average of four touch points during the onboarding while corporates said it was double that, at eight touch points. Corporate customers also complained that their banks often asked them for information they had already provided, or for information readily available in the public domain.

Another failure in KYC is maintaining accurate customer information , said Steve Pulley, global managing director for Risk Managed Services at Thomson Reuters.

Again, financial institutions appear to lack a realistic view of their relationships with corporate customers. Banks said they receive proactive updates of important corporate information from 70 percent of their clients. On the other side of the relationship, corporations estimate they update their FIs just 30 percent of the time.

Significant Costs of KYC

The average cost of meeting KYC and CDD requirements ranges from $60 million up to $500 million, the survey found, and this at a time when revenues are declining, margins are under pressure and asset managers have seen a reduction in assets under management.

These numbers don’t include the costs of penalties. Compliance failures are costly — $13.4 billion in 2014 according to Booz Allen Hamilton. These numbers demonstrate a significant ongoing cost and a serious risk to incur further costs. Add to this, the loss of business due to client abandonment, and KYC becomes a major factor in a banks overall financial health.

These are the types of issues that Trulioo is helping our clients solve. Our flagship identity verification solution, GlobalGateway, is designed specifically to help our clients streamline cross-border AML and KYC systems for global expansion. GlobalGateway ranked first in the ID Verification Tool/Identity Checks category and third in the Overall Supplier Rankings in the 2016 RegTech Performance Report published by Market Fintech Limited.

“Clearly this is an area that requires more innovation,” said Jon Jones, President of Trulioo. “Compliance needs regulatory technology to efficiently and accurately automate the basic tasks , so that resources can be focused on policy, execution and product design and innovation.”

The information in this blog is intended for public discussion and educational purposes only. It does not constitute legal advice.

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