Let’s face it.  Onboarding and KYC operational processes have had to change significantly over the last 10 years as regulatory requirements and customer expectations have changed.  Long gone are the days of financial institutions being able to rely on relationship managers “knowing” who their customers are, and where they got their wealth.  The financial industry has had to grow up to create a robust, up-to-date, auditable view of the customer. At the very minimum, this view, once the bank has established that the customers actually exist, needs to cover source of wealth, ownership of accounts, and what customers are doing with their assets.  Also, banks need to be able to react at the drop of a hat when any material negative news pops up which might affect the risk profile of their customers.  A big complex undertaking, to say the least!

Where are we now?

The current landscape of onboarding and KYC across the financial services industry, whether we are talking about institutional, commercial or retail customers, is a real hotchpotch of manual, legacy, and third-party processes, combined with technology “fixes” implemented usually to drive down cost and headcounts numbers, or to plug a gap identified in a regulatory or internal audit review.  Until fairly recently, the strategies for onboarding and KYC have focused on local rather than global solutions and have been built for a particular business line or product.  This has led to disjointed front and back office processes across different systems, inconsistent views of the customers and KYC risk assessments across business lines and product areas, and most importantly, many contacts back and forward with customers to get documents and information.  Oh, and by the way, the customers may have already provided this to other folks within the banks many times over depending on the size and scope of the relationship.

What a dysfunctional mess from the customer point of view! Not to understate the cost and resource implications, and the duplication of effort across the processes.

The changing landscape

Banks are waking up at last, realizing that putting the customer at the center of everything they do is the key to creating a sustainable, cost-effective, regulatory compliant environment where customers choose to stay, feeling part of a partnership rather than a means to profit for the bank, and where they are willing to increase their business in the knowledge that the bank has their back and has most if not all of the information required to move forward

So, what does this look like from the bank’s point of view?  Well – basically, it means that banks are now taking a more global view of their customers, whether that’s across regions, business lines, or product areas.  Sharing of information (subject to data privacy laws) has become the key so that onboarding times are cut, customer engagement is cut to the minimum, and purely for information and documents that can ONLY be obtained from the customer.  There are many third-party data sources out there which can provide publicly-available information to be used in the onboarding of customers. 

From a process point of view, banks are applying case management principles, linking the CRM front office systems, with the back-office KYC processes seamlessly and transparently.  This is leading to holding people accountable for their part in the onboarding journey to keep the process running.  It also enables the KYC processes to be rolled over into business lines and jurisdictions, with only incremental regulatory requirements needing to be addressed as needed.  The re-use of information and documentation is key to the success of the customer experience and confidence that banks know what they are doing and are communicating effectively internally.

From a regulatory compliance point of view, banks are now able to create consistency of KYC risk assessments across their business lines and jurisdictions, re-using and sharing information, maintaining a common standard, and being able to satisfy the needs of the various local regulators through applying local regulatory rules on top of a global minimum standard where necessary.

So now on to RegTech

In this transformation across the banks, Regtech has played an increasingly important role.  Internal IT departments and legacy systems have a key part to play alongside the many vendor solutions that have sprung up – after all, nobody wants to throw the baby out with the bath water!  Reducing return on investments and writing off sunk costs are tough decisions in anybody’s book!

There are lots of vendors out there offering solutions to all or part of the challenges.  AI, RPA, DPA, Blockchain, Rules engines, zero code, low code, and configuration are all buzzwords in our current vocabulary.   Making the right choices can be hard, especially when trying to weigh up all the options.  It is difficult to put everything on a level playing field to compare like with like. 

One thing we often lose sight of is the fact that Regtech should be an enabler and a key part of the solution.  It should not drive the strategy but make the solution work better for all involved.  As the Regtech industry evolves and new solutions become apparent, the ability to renew and wrap these around existing infrastructures becomes very important.  The ability to implement change quickly and smoothly, with minimal business disruption is vital, and the importance of shifting from coding to configuration is becoming more recognized across the industry.

In summary, each bank has a different journey to take.  At the end of the day, everyone in the industry is striving to get to the same place – customer satisfaction and retention, robust transparent processes, regulatory compliance, increased revenue and profitability, and a sustainable operating model that is future-proof to carry the bank into the new world as Regtech innovation continues apace.

Choosing the optimal Regtech solution and working with the right vendor who is there for the long haul is the ultimate key to success.