Future-proofing compliance with Client Lifecycle Management (CLM)

Significant global events, such as the Russia-Ukraine war and subsequent vigorous international sanctions, have shocked compliance leaders into action. Governments around the world are demanding a stricter approach to anti-money laundering and sanctions through regulation, which has resulted in increased and heavier financial penalties being levied. For example, by mid-August 2023, the US Office of Foreign Assets Control (OFAC) — which enforces economic and trade sanctions — had already fined businesses around the world more than $550 million. This is triple the total amount fined in the previous three years combined.

With the hardening of regulations, the volume of work required to achieve compliance is increasing. According to Moody’s Analytics Grid database, from 2020 to July 2023 the total risk instances for sanctioned entities and those sanctioned by extension increased from 17,425,216 to 63,249,031. With the number of sanctioned entities having skyrocketed in the past year and a half, there is more work required to check Ultimate Beneficial Owners (UBOs) against an expanding list of impacted individuals and companies.

With new regulations, such as the UK’s Economic Crime and Corporate Transparency Bill 2023 and Canada’s Forced Labour and Child Labour in Supply Chains Act 2023, aimed at fighting financial crime around the corner across multiple jurisdictions, there is a need for organizations to look ahead to ensure they will maintain compliance and mitigate risks.

Those companies who take a proactive and dynamic approach to anti-financial crime compliance and Know Your Customer (KYC) solutions are gaining a more complete picture of risk associated with third parties. Understanding customers more completely can provide opportunities to improve experiences and upsell/cross-sell products. A streamlined KYC process can boost customer satisfaction, improve brand loyalty and reduce churn, as well as protect businesses from exposure to risk.

So, the question is this: how can organizations keep ahead of an evolving compliance landscape and improve customer experience?

Digital transformation of client lifecycle management (CLM) – the answer to increasing compliance efficiency

The challenge for compliance teams can sometimes seem like a task of balancing opposing forces. On one side, there's the ever-changing compliance landscape and evolving regulatory requirements. On the other, there are the business goals of driving innovation, creating competitive advantage, satisfying customers, and improving operational efficiency. Striking a balance between these contrasting elements is no small feat.

The answer to balancing compliance efficiency with customer experience lies in the digital transformation of client lifecycle management (CLM), including KYC activity. KYC is a set of processes involving data gathering, due diligence checks, analysis, and assessment of risk, all of which must be finely tuned to achieve good customer experiences, operational efficiency, and compliance.

For many organizations, the workflow behind KYC, at customer onboarding for example, still isn’t very far removed from the paper-based processes of decades gone by. Identity and risk-relevant data are gathered at the onboarding stage and periodically reviewed thereafter – sometimes with years between renewed checks. This approach can leave companies exposed to risk and create gaps in knowledge about customers. It also increases the workload at the point of KYC refresh as risk profiles have become stale and client data needs to be wholly refreshed.

Managing KYC processes and risk on a continual basis – termed perpetual KYC or pKYC - throughout the client lifecycle leverages automated solutions to create risk profiles that are “always on.” Organizations can be alive to both risk and opportunities with pKYC, and it can vastly improve compliance efficiency while leaving clients unaware a process is taking place behind the scenes.

Perpetual KYC and its benefits

With a perpetual KYC approach, organizations can be alert to new risks, such as new fraud typologies, PEPs added to the network, and so on, while ensuring customers aren’t asked for compliance related information unnecessarily. This makes pKYC an increasingly popular approach to anti-financial crime compliance and risk management, as part of a CLM strategy.

It’s important to organizations that customers have the right experience when acquiring a new product or service, and pKYC facilitates digital-first experiences that are seamless and efficient, while automating the necessary compliance checks and asking customers for data when necessary, ensuring no key information is missed. 

At onboarding a risk profile is created through a workflow of integrated, automated KYC checks. The risk profile is digitally captured, and the customer data is maintained in one place. Then continuous monitoring of real-time, risk-relevant data – including sanctions, watchlists, adverse media, and PEP information - can take place. Organizations leveraging a risk-based approach to compliance can monitor risk indicators and investigate new risk alerts, without delay. When a high-risk customer is identified, compliance teams can make decisions about what to do next with regard to enhanced due diligence or off-boarding. And if nothing changes on a customer profile, there is no disruption and no need for wholesale reviews, which results in a better customer experience.

Having a configurable CLM solution is advantageous for companies dealing with regulatory changes, as it allows for quick adjustments to be made in line with regulatory updates, without the need for a complete process or system overhaul. Indeed, Moody’s Analytics customers using the bespoke CLM solution make, on average, eight changes to their KYC workflow configurations each quarter.

Beyond complying with regulation, the right CLM solution can turn compliance into a value driver through improved customer experiences. According to research conducted by RegTech Associates for Passfort, a Moody’s Analytics solution, of the customers who enjoyed a “better than expected” compliance experience, 77% were more likely to recommend their provider and 60% were more likely to buy another product.   

Businesses can unlock significant value by providing excellent compliance experiences during customer onboarding and throughout their lifecycle. Rather than just meeting regulatory requirements, enhancing customer compliance experiences can lead to increased customer loyalty, advocacy, and business growth. 

Conclusion

The shifting sands of global regulation are challenging for businesses to get to grips with, but the cost of financial crime, operational inefficiency, escalating financial penalties, and an ever-burgeoning list of sanctioned entities make it an important challenge to tackle. Yet, within these challenges lies an opportunity. By embracing digital transformation and continuous client lifecycle management, organizations can effectively manage risk, stay ahead of the compliance curve, and enhance customer relationships. 

The move from periodic KYC checks to perpetual KYC, or pKYC, as part of a CLM strategy signifies a proactive approach that ensures risk-related client data is always up-to-date. This improves understanding of where risks lie across a client base and also ensures businesses are primed to leverage opportunities when they arise, be it upselling, cross-selling, or enhancing customer satisfaction.

Choosing technology as part of a digital transformation of CLM that enables KYC and anti-financial crime processes to be tailored and reconfigured enables adaptability and reduces the risk of non-compliance.

For compliance teams, this digital transformation offers the dual benefit of streamlined operations and the chance to position themselves as proactive, strategic partners within their organizations. 

The future of compliance isn't about reactive measures but about creating a seamless, efficient, and continually adaptive system for risk management. This blend of technology with a keen understanding of customer experience and regulatory demands will be the cornerstone of successful, future-proof client lifecycle management.