This monthly update takes a look at the importance of an integrated KYC approach.
The way many businesses have traditionally implemented KYC is by taking a manual, fragmented approach – essentially implementing various different KYC processes using different tools, methods and resources, including human compliance teams.
What this usually looks like in practice is that companies will tend to adopt and use different tools for carrying out the various processes that make up KYC: one tool for ID verification, another for AML screening, another for KYC checks, a different one for crypto wallet checks, and so forth.
There are numerous problems with this approach:
- Data collected from fragmented sources is difficult to process as it is often gained using different metrics and values. This adds to the already extended time it takes to move between tools and platforms, making it very difficult to make a fast onboarding decision.
- Companies are unable to quickly respond to changes in their client base if a different type of KYC check is required, restricting their ability to scale and respond to market changes.
- The lack of uniformity in compliance checks means that data that is obtained in onboarding processes is inconsistent and evaluated according to non-uniform metrics and values, increasing the risk of onboarding clients with misunderstood risk profiles.
- Carrying out KYC checks in parallel to an onboarding process – rather than as part of the onboarding process – creates more friction for customers with the risk of higher abandonment rates – and lost revenue.
- The lack of automation in manual processes introduces the significant risk of human error, in particular when companies are attempting to onboard high volumes of new customers using a human compliance team.
- Human compliance teams require significant financial resources – Financial Institutions (FIs) commonly report that compliance departments are some of the most expensive and resource-intensive in their organizations.