Best practices for a successful KYC remediation project

In the past two years regulators in some jurisdictions (most notably the Nordics, UK and the Netherlands) have started to increasingly focus on the quality and completeness of existing client records—including documentation of risk assessment.

One of the greatest challenges with these situations is that they create overnight urgency to act. Once the letter from the regulator falls on the doormat of the bank, the clock starts ticking. In fact, it is not uncommon for regulators to designate an offboarding date: i.e., any client that has not passed KYC remediation by that date needs to be offboarded, putting the reputation and revenue of a bank at risk.

While most common KYC remediation mistakes involve choosing expediency over quality and putting too much attention on cosmetic changes instead of value-added strategic investments—our recommendations for success involve maintaining a focus on the stakeholders and metrics that matter the most.

1. Reward clients

What if a bank could promise that the next KYC process would be the last ever? What if a bank customer could leverage data shared with their bank to access other (financial) services? What if a bank customer could become a partner in protecting their account and the accounts of others? What if all of the above could be offered to a client through a remediation process that culminated with the issuance of a re-usable, portable electronic ID (eID)? This would be something for consumers to get excited about—and if it is achievable in under 90 seconds, conversion rates would skyrocket.

Under the European eIDAS (electronic IDentification, Authentication and trust Services) framework, the legal opportunity to provide clients with a reusable eID already exists. We have already seen significant traction with itsme in Belgium, for example. The technology is already available for eID capabilities to be rolled out by banks in a secure and scalable manner. Offering a bank-branded eID allows banks to reuse KYC files internally (e.g. retail banking and SME banking), enables a bank customer to share select data points by consent with an external organization (e.g. full name and address) and offers unrivalled protection against account takeover fraud, phishing and money mules. Such technology is available on a white-label basis, which allows banks to retain control over branding and client ownership while fast-forwarding a decade in the approach to KYC.

2. Improve data quality

In the mobile-first era, banks lack face-to-face client interaction, but in return get easy access to data points that can help improve the quality of their (centralized) CRM and reduce financial crime. The value lies in looking at these data points holistically. This allows for consistency checks, statistical anomaly flagging, and suspicious pattern identification (since money launderers never work alone).

The advancements in fraud prevention and detection technology have not gone unnoticed to fraudsters. There has been a noticeable improvement in the quality of fake documents, and they will only continue to get more difficult to detect. Even some national police organizations are assigning less and less value to an ID document on a standalone basis and relying more on biometrics and contextual data to establish the true identity of a person.

Banks have a privileged position when it comes to data, as they are one of the few commercial organizations that are obliged by law to identify their clients and—by definition of the product they offer—maintain access to a trove of data points throughout the customer lifetime.

If the right data points are retrieved, stored and monitored after a remediation process, a bank can lift its anti-financial crime efforts to new heights. Challenges like money mules, deep fakes, phishing attacks, eBay fraud and many other (new) forms of financial crime can be tackled most effectively by using data. If you see more, you know more—and if you know more, you see more.

3. Prioritize cost and time

In recent years, banks across Europe (with Northern Europe leading the way) have made significant advancements in digitizing their account opening processes for clients. Remote onboarding has rapidly become the standard following the rapid switchover to mobile-first. On the back of this, a number of regtech and fintech startups have introduced solutions to capture and authenticate the ID documents and selfies of clients in a user-friendly manner. While not all of these technologies offer the level of quality and detail a bank requires, there are a number of emerging providers that focus specifically on financial services—meeting the standards needed to convince regulators that they can fulfill their expectations.

However, in a large-scale remediation process, being able to provide a digital experience to account-holders is not the key challenge. The key challenges are meeting time and quality expectations across an entire backlog of client cases. A bank wants to ensure that it gets it right the first time, exceeding regulatory requirements from a quality perspective while also meeting the deadline to avoid forced account closures.

Delivering on time requires an ultra-efficient process, not just for clear-cut cases but also for edge cases and investigations (e.g. to validate a potential hit on sanction lists). The focus of banks has recently been on hiring thousands of staff to increase capacity, but the big win in capacity comes from reducing handling times. Tech-forward KYC providers can contractually commit to SLA turnaround times measured not in months, weeks or hours, but in mere minutes.

While a typical remediation process may prioritize time over budget, the fact that millions of clients need to be reviewed means costs can easily spiral out of control. In a typical BPO set-up, the vendor (usually a consultancy or audit firm) has very little incentive to increase efficiency, since they are paid based on the total number of labor hours used.

Selecting a tech-driven solution (either pure SaaS or a tech-based end-to-end-solution) instead allows a bank to benefit from technology innovations for back-end processes—not only to filter out ID fraud, ID theft and colluding criminals, but also to reduce the handling time of more complex cases like the aforementioned investigations. The efficiency gains of such scalable technologies can lead to cost savings of over 90%. In a multi-million client remediation project, this means tens of millions of euros in expense reductions. At a time when costs at a bank are a key focus, such relatively easy cost savings are as rare as they are welcome.