11 December 2017
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4th EU AML Directive will make curbing crime easier, but cost banks millions

26 June 2017  |  10825 views  |  1 20 pound note

As the 4th EU AML Directive comes into force today, a pair of studies suggests that while most UK FS industry financial crime professionals think the new rules will make it easier to prevent money laundering, they are likely to cost banks millions in inefficient KYC checks.

As the deadline for full implementation of AMLD4 hits, a survey of nearly 200 UK professionals by LexisNexis Risk Solutions shows that 73% think it will make preventing money laundering easier. This marks a significant shift in attitudes from two years ago, when just 17% thought the directive would make a change and 32% thought it would make no difference.

However, there is likely to be an associated cost. Research from Consult Hyperion for Mitek suggests that the average UK bank already wastes £5 million a year on manual and inefficient KYYC processes. With AMLD4 and the anticipated AMLD5 increasing the frequency and scope of these essential checks, the annual waste is likely to double to £10 million a year, claims the report.

Total costs for KYC processes range from £10 to £100 per check and, in the UK, a quarter of applications are abandoned due to KYC friction. What's more, AMLD4 will impose fines as high as 10% of annual turnover for serious breaches.

Consult Hyperion says that eIDs for digital onboarding are still several years away from being widely available but that mobile technology could save millions of pounds on KYC costs.

"The message to all financial institutions is clear: The cost of KYC checks is much too high, placing too much reliance on inefficient and error-prone manual processes," says Steve Pannifer, COO, Consult Hyperion.

"Getting it wrong is both costly and damaging. New rules will result in much higher fines when serious failures in compliance occur. Financial institutions cannot afford to wait for eID to be widely available. Advanced mobile technology provides a straightforward mechanism now to reduce both cost and risk as well as remove friction from the user experience, increasing top line revenue."

Comments: (1)

Jane Jee
Jane Jee - Kompli-Global - London | 27 June, 2017, 10:55

Reference the costing billions, it doesn't have to be this way. As CEO of Kompli-Global I know that KYC checks, as they are currently performed, certainly can be inefficient and expensive. Manual processes tend to include time consuming web searches that are often hit and miss. They’re often not exhaustive enough, as information online can be hidden from or overlooked by researchers. One approach that will satisfy regulators and save money will be to move away from some of the inefficient manual processes. RegTech companies are building ways to solve the challenges using artificial intelligence to enable quicker, more thorough customer checks leaving the human researcher to view new results found and make reliable, evidence-based risk assessment. Technology will be the key that enables a more frictionless customer onboarding experience. 


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