The Evolution of KYC in Banking: Adapting to New Challenges

In a recent webinar hosted by Fenergo on January 17, 2024, titled ‘KYC, AML, & Onboarding in 2023 – Were Lessons Learned or Do Old Habits Die Hard?’, compliance experts came together to discuss the changing landscape of Know Your Customer (KYC) processes in the banking sector, as outlined in Fintech Global News. The event brought attention to key findings from a comprehensive study titled ‘KYC in 2023,’ which drew insights from over 1100 executives representing global banks.

One of the most significant revelations from the report was a notable 17% increase in the average cost of KYC reviews, coupled with an 11-day extension in their duration over the past year. The survey showed that approximately two-thirds of banks now allocate budgets ranging from $2,500 to $3,500 per KYC review. This surge in costs can be attributed to several factors, including the ever-growing complexity of regulatory requirements, involvement in multiple jurisdictions with varying demands, and delays in client responses. Additionally, the efficiency of accessing reliable data, notably better in regions like the Nordics compared to those with strict data privacy regulations, was identified as a critical factor in improving the KYC process.

The webinar also shed light on the challenges faced by banks in transaction monitoring, with a particular emphasis on the high false positive rates. Outdated legacy systems and a lack of integration between KYC, onboarding, and transaction monitoring systems were identified as culprits behind these inefficiencies. According to the 2023 survey data, these issues ranked among the top transaction monitoring challenges faced by banks.

Artificial intelligence (AI) and machine learning (ML) made an appearance in the discussion on transaction monitoring. Approximately 25% of webinar attendees reported using these technologies for rules and analytics, while a substantial 46% admitted to not utilizing AI or ML at all. The panelists expressed optimism about the potential of AI and ML in improving transaction monitoring by allowing for more flexible rule configurations and adaptability to geopolitical changes.

Another critical theme that emerged from the webinar was the client experience, with nearly half of the surveyed banks acknowledging the loss of clients due to slow onboarding processes. To address this issue, suggestions were made, including the implementation of centralized client data storage, leveraging digital channels, offering self-service options, and providing a single point of contact. Nicola Poole, Global Head of New Client Onboarding at Citibank, stressed the importance of a unified client view and a streamlined service organization to reduce client attrition rates during onboarding.

The future of KYC in the banking sector is evolving to meet new challenges. The rising costs, transaction monitoring issues, and the potential of AI and ML are key factors shaping the landscape. Client experience improvements are also critical for banks to retain and attract clients in this dynamic environment.