Due to time, cost and loss of productivity required to deliver a KYC remediation project, many firms delay activity or avoid the challenge altogether until the regulator comes to call.
However, with the current market volatility and increasing levels of financial crime, sitting on a back-book of inaccurate or out-dated client data will expose your business to significant commercial risk and reputational damage.
Although the future remains uncertain - one thing is for sure: remediation and periodic client reviews will be of greater importance in 2021 as firms navigate the new business environment.
Despite remediation being common practice within the financial services industry remediating past client data, some of which may be over 5 or 10 years old, can be an enormous compliance headache.
After working with key financial services firms to deliver more efficient and effective remediation projects, we are sharing below the 7 top challenges firms face when it comes to delivering KYC remediation:
1. Lack of understanding from Board level
The Board sees the project as uncomplicated, but in real terms, the delivery of KYC remediation is never straightforward. Due to a lack of understanding from the board on the true scoop of the project, it means remediation projects are delayed or escalate into far larger scale activities than initially scoped.
2. The quality KYC Data
A weak initial client onboarding process can create challenges for remediation later on. If your onboarding team does not fulfil appropriate Due Diligence, Anti-Money Laundering or Know Your Customer verification from the onset, remediation teams firms often find it difficult to prioritise high-risk customers for remediation.
3. Sheer volume of KYC data
The sheer volume of data and ID documents that need to be remediated when performing periodic reviews often presents a daunting task for firms. Relying on manual processes for data collection and client due diligence not only increases the risk of human error but also dramatically slows the project down, to reverify an institutional customer, for example, can take anywhere between 100 and 200 days.
4. Legacy Platforms
Client data is often held on multiple different legacy systems within different departments which often contain inconsistent information. This hampers the ability to understand the customer and then prioritise the work to review them. To remediate the data inconsistencies, organisations often fall back to manual processes, spreadsheets and temporary measures which bring with them associated time and budget implications. Highly configurable digital solutions can not only work with a variety of legacy systems but will also deliver results in far shorter timeframes.
Banks and financial services are reluctant to dispose of their numerous legacy systems, as remediation is not seen as a priority or easy task to deliver. However, not investing in the digital transformation of remediation can lead to significantly increased pressures on the business further down the line.
5. Different products have different risk ratings
Financial institutions often have a wide range of financial products and services they offer. These can vary from simple to complex and from execution-only advice-driven delivery. These different nuances in the product set must also be addressed in the compliance process as each product or service will be given its own weighting when it comes to risk - from high down to low. The process of remediation needs to prioritise those records that are higher in risk and allocate resources accordingly.
6. Customers can be in a variety of countries, including sanctioned countries
A seemingly simple Remediation project can quickly escalate into a complicated one. For example, if you had a back-book of 5,000 UK based companies that need to be remediated this seems like an easy list to tackle right? Also, what if each of those UK companies is owned by a foreign Ultimate Beneficial Owner (UBO), and if some UBOs were on a PEPs and Sanction list and currently based in a high-risk country? The seemingly simple project turns very quickly into a complex one. Furthermore, if your clients are politically exposed, or based in a high-risk third country, you may also need to establish a client's source of wealth which can be intrusive.
7. There is a lack of experienced internal resource
Skilled remediation resources are not easy to find, let alone retain. Lack of compliance and legal knowledge can be an issue when delivering remediation projects.
By providing your compliance teams with a digital solution the laborious tasks can be removed, allowing them to focus on using their skills and knowledge on areas that will ensure employee engagement and deliver complex remediation cases that require enhanced due diligence.
The traditional response to client and project reviews has largely been to throw additional headcount and budget to the problem in order to resolve it. However, this only ever succeeds in driving up the overall cost of compliance and is unsustainable given the volume of newly-introduced or impending regulations that will require periodic client reviews.
Instead, if we see this as an extension of the onboarding process and look at the entire customer life cycle, then we can achieve effective monitoring and remediation efficiencies with automated solutions to carry out routine tasks. Single API driven solutions can solve much of the headaches as they are highly configurable to each organisation according to their appetite for risk and approach to amber management.
The future remains uncertain, if President Trump is re-elected and there are changes to US regulation or if more banks merge across Europe and there is consolidation across back-books we could see a new era of remediation - one thing is for sure: remediation and periodic client reviews will be of greater importance during 2021 as we increase our borrowing and online activities.