Financial institutions, remittance companies, and payment providers are struggling to keep up with a growing number of industry regulations. New requirements for documentation, checks, and customer screening must be added on to the existing complex system of obligations, systems, processes, and databases. As a result, many are unable to establish compliance, resulting in a record number of fines against some of the largest banks in the world.
In an industry where regulations continue to become increasingly stricter and more complex, how do financial service companies and institutions effectively manage compliance to anti-money laundering (AML) and Know Your Customer (KYC) rules?
One trend that has been gaining momentum, especially this past year, is the launch of new reference data utilities for KYC. These utilities are centralized clearing houses that provide access to reliable and accurate identity documentation for financial institutions carrying out AML and KYC due diligence checks.
The concept of reference data utilities is simple: rather than have multiple institutions collect and verify similar documents and information from the same pool of clients, utilities work based on the principle of capturing data just once to be reused many times. The utilities use the power of Big Data to lessen the burden currently borne by these institutions. Currently, financial institutions must gather data from multiple sources, verify its accuracy, and process it into a form that can be readily used – making due diligence checking a very time-consuming and resource-intensive procedure.
A key advantage of using utilities is that financial institutions can save both time and money through efficiencies gained by using fewer resources for due diligence reviews and onboarding clients more quickly. When electronic identity verification (eIDV) is added to the onboarding process, institutions have a very comprehensive and cost-effective means of remaining compliant with ever-changing AML and KYC requirements. A FinOps Report article states that the expected cost savings could be anywhere between 10 and 20 percent depending on the number of data vendors, applications, and types of data involved. According to a Markets Media post, outsourcing to a utility can shorten the time that it takes to generate a critical business answer from months or weeks to mere hours and minutes – a 100:1 time advantage in many cases – through the use of Big Data.
Despite the value that utilities can bring when it comes to accelerating the client onboarding process, they must not be treated as a replacement for existing compliance management staff. As pointed out in a Finextra article, the responsibility – and ultimately the liability – remains with the financial institution to ensure that all AML and KYC due diligence and compliance is fully satisfied for each client and that compliance is maintained for the entire duration of the client’s relationship with the institution.
How should a financial institution select the best reference data utility for its needs? An ideal choice should work based on economy of scale. In other words, the more participating institutions that share data for the same clients, the greater return they can expect along with lower costs. The same also applies when looking for a suitable eIDV service provider.
Trulioo’s electronic identity verification service, GlobalGateway, was created specifically with AML and KYC compliance in mind. With access to over 140 data sources and the ability to verify 4 billion people in over 40 countries, GlobalGateway is used by eCommerce, financial institutions, remittance companies, and payment providers for all of their compliance, risk mitigation, and age verification needs.
When used together, reference data utilities and on-demand identity verification can help financial institutions bring new clients onboard faster than ever before. This results in minimized lost revenue caused by long processing waits as due diligence checks are completed.