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3 trends helping KYC due diligence adapt to a changing world, 2020
01 December 2020
Before 2020, KYC due diligence teams were already under pressure
from regulatory, industry and technological changes. When the
pandemic hit, they suddenly faced an additional set of challenges
as they were forced to transition to remote KYC due diligence
virtually overnight.
Months later, financial institutions, along with regulatory
bodies, are still figuring out how to navigate this new and
unfamiliar landscape. Recently, we spoke to select risk and
lifecycle management executives at top global sell-side
organizations about the challenges they face as a direct result of
the pandemic, the solutions they have put in place and their
predictions for the future of KYC due diligence in an ever-changing
world.
Digital verification
The rapid rise of the remote and digital workplace has posed
additional challenges in terms of verification and
control—especially for firms whose operations cross multiple
jurisdictions. In the blink of an eye, the infrastructure built on
physical signatures collapsed, forcing organizations to find new
workarounds. While implementing digital signatures and digital
documentation technology were on the roadmap for many, the pandemic
has accelerated the adoption of these technologies, even for firms
that demand the highest standards of control and execute on behalf
of their clients.
While corporate and investment banking have very different
requirements than the retail and challenger banks for whom digital
identity is already part of the infrastructure, they are actively
exploring the potential applications for KYC and onboarding
activities. While the changing nature of the regulatory reform
agenda complicates the issue, there is a growing recognition that
if a client could present a digital, verified KYC identity to every
bank they deal with, it could support a near real-time onboarding
process.
Workflow technology
Technology has been a powerful enabler across the board, helping
firms to meet their objectives and keep throughput and productivity
on target despite considerable business disruptions. KYC and CLM
teams that had invested in digitalization before the pandemic
generally found that they were able to maintain momentum and avoid
backlogs during the transition to WFH because they were underpinned
by technology that supported remote collaboration and
coordination.
While some firms placed innovation and transformation
initiatives on hold for the first few months of the pandemic,
others chose to move forward despite the outbreak and saw success.
As KYC teams acclimate to the new normal, and as the examples of
successful remote implementations circulate, the industry is likely
to see a wave of digital transformation initiatives as the
financial services industry seeks out ways to create efficiency and
reduce time to market across global jurisdictions.
For many, the ultimate goal in the current remote environment is
to achieve a fully digitized workflow that connects KYC due
diligence teams to the full range of internal and external
stakeholders who contribute to the process. The technology is not
there yet, but it is evolving rapidly, and forward-looking firms
will be working towards that goal in the months and years to
come.
Managed services
Remote work, in some form, is here to stay, and this will effect
a permanent change in the way KYC due diligence teams get things
done. In some cases, this may result in a greater reliance on
managed services providers, with experienced resources and
cutting-edge technology that can enhanced remote in-house teams.
Internal cost reductions can be a driver for firms that have not
relied on managed services before, motivating them to select
partners capable of supporting them in specific areas, such as data
and documentation capture.
The integration of managed services into the remote workflow can
also confer a technological benefit to the in-house team. Many
managed service providers leverage new rules-based digital
technologies, such as data aggregation or document-gathering
technologies, in their service delivery. Technologies folded into
service delivery may include passporting, which passes some of the
responsibility back to the client for verifying and sharing the
information required for KYC activities, and OCR or blockchain
technology to facilitate the digital ingestion and verification of
the information. While some firms are investing directly in
technologies that support KYC processes, those that are holding off
for budgetary or economic reasons may look to external providers to
not only help them manage their KYC obligations but also provide
access to these technologies.
KYC faces a new normal
The pandemic has had a profound impact on the KYC due diligence
function. Nearly a year later, it's clear that the impact will be
long lasting. Most risk and lifecycle management executives believe
that the remote workplace is here to stay as employees continue to
enjoy the flexibility of WFM and demonstrate that the quality and
efficiency of their work remains unimpaired. While the new
workplace may have increased the use of managed services, the
greatest change is the renewed reliance and focus on technology and
its potential to transform KYC processes. As KYC due diligence
teams continue to adapt, access to accurate data, technologies such
as digital verification and automated workflows will enable them to
turn the realities of remote work into a competitive advantage.
IHS Markit provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.
