De-risking Customer Onboarding with Cross-channel, Real-time CDD

(First in the two-part series on improving customer lifecycle management in banks)

A 1000-mile journey begins with a single step’ – ancient Chinese adage

In today’s intensely competitive environment, banks are faced with the challenge of maximizing revenue, reducing attrition, and maintaining customer relationships. This means implementing a holistic approach for creating strong customer-centricity, which is the key objective of great customer lifecycle management (CLM).

Whether it is transaction banking or wholesale banking or cash management services, customers continue to generate significant fee-based revenue for banks. So CLM is vital for serving corporate, institutional or individual customers. And given the fierce competition to win customer loyalty, especially with increasing mergers and acquisitions, banks are now investing much more than before in improving their CLM processes.

An ideal CLM journey has:

On-boarding:

• Establishing new accounts, products, and services for new or existing clients
• Processing paper and electronic information, stored in file cabinets and disparate legacy systems
• Ensuring compliance with bank policies and procedures

Ongoing Relationship Management:

• Processing add/change/delete requests for authorized signers, products, and services
• Growing the relationship through ongoing, personalized communications

Migration:

• Moving customers from legacy systems to end-state, target systems
• Supporting data migration, new documentation, validation of existing users and services

Let’s take a look at the first step in the CLM journey – onboarding.

Regulatory supervisors around the world are increasingly recognizing the importance of ensuring that their banks have adequate controls and procedures in place so that they know the customers with whom they are dealing. Adequate due diligence on new and existing customers is a key part of these controls. Without this due diligence, banks can become subject to reputational, operational, legal and concentration risks, which can have significant financial impact.

On the other hand, customers expect convenience, speed + quality of service delivery and personalized service. An efficient onboarding process reinforces the bank’s customer-centricity while taking care of critical operational risk mitigation procedures such as KYC, Due Diligence, Beneficial Ownership Verification, etc.

KYC is a critical component in the onboarding process to help establish the customer’s identity prior to onboarding and Customer Due Diligence (CDD) is a regulatory norm as part of the KYC process. A bank is required to ascertain the identity of the customer and confirm that funds in the customer account come from legitimate sources.

The first part in a KYC program is a bank’s Customer Identification Program (CIP) which requires collecting and documenting a customer’s name, date of birth, address and identification presented.

The second is Customer Due Diligence (CDD) which requires obtaining information to verify the customer’s identity and assess the risk. If the CDD inquiry leads to a high-risk determination, the bank has to conduct an Enhanced Due Diligence (EDD).

In the US, FinCEN’s CDD rule clarifies and strengthens CDD requirements and has included a new requirement for banks to verify the identity of beneficial owners of legal entity customers.

The four factors FinCEN prescribes when performing CDD are –

• Customer identification and verification
• Beneficial ownership identification and verification
• Understanding the nature and purpose of customer relationships to develop a customer risk profile
• Ongoing monitoring for reporting suspicious transactions and, on a risk-basis, maintaining and updating customer information

So, while focusing on delivering a great on-boarding experience, banks must simultaneously ensure and enforce CDD.

CDD helps banks assess money laundering risks with a better identification mechanism and mitigates customer-related risks. CRC or Customer Risk Categorization is a Risk Scoring framework that uses parameters like demographic profiles, geographic, product subscriptions and watch list matches to provide a risk score.

These risk scores are assigned to customers’ profiles during onboarding and updated along with their journey. Even something as mundane as critical documents expiry updates and notifications, if not handled accurately and on time, can cost banks heavily for non-compliance. In fact, the risk exposure increases when critical information is not updated.

Technology is a key enabler for effective client lifecycle management. There are advanced solutions now available that help banks streamline the complete customer lifecycle assessment and re-assessment of customer risk as part of KYC applicant on-boarding and ongoing CDD processes.

These solutions help streamline money laundering risk assessment, improve understanding of the customer in order to identify, manage and mitigate customer related risks better.

So, what must a bank look for in a good CDD enabling technology solution?

• Integration with the on-boarding system – The solution should be able to seamlessly integrate with any form of existing on-boarding system to capture the customer information.
• A comprehensive risk scoring mechanism for new customers.
• Interactive and dynamic forms & configurable questionnaires based on the customer’s risk score.
• The solution should be able to capture and maintain multiple Beneficial Owner Information for New Accounts.
• Enabled to check against various list/Sanction Screening against Customer and Beneficial owner information which supports –
  • External private company data providers
  • Comprehensive List Management that supports various list providers and custom internal lists
  • Intuitive user interface for List Rule Configuration
  • Advanced Identity Resolution Analytics Engine that supports fuzzy and exact match algorithm for fields
• An integrated case management system for case creation and reporting.

In conclusion – to determine the relevant risks, the 10 key customer information points that banks need to collect are –

• Nature of business
• Purpose of account
• Expected pattern of activity (volume, nature of transactions, and amounts)
• Origination and destination of funds
• Basic business documentation
• Business customer’s customers (e.g. international customers or banks)
• Nominal and beneficial owners of the account
• Business reputation and references
• Other business and personal business interests
• Location of business in relation to bank

This is not an exhaustive list and banks may need additional information depending on specific facts, but this is good to start with.

But these, together with a good CDD enabling technology solution can help banks achieve a streamlined onboarding experience as a strong first step in the right direction – towards a great customer lifecycle journey.