Financial institutions around the world not only prioritize financial inclusion and financial transparency, but also share the desire to increase data sharing and collaboration with their peers to achieve it, according to a new study by LexisNexis Risk Solutions, a global big data, technology and analytic linking company.
The global Financial Inclusion & Transparency Survey, which targeted 300 senior-level professionals in the financial services sector with Anti-Money Laundering (AML) Compliance responsibilities, revealed worldwide consensus around the benefits of a global utility. Nearly all respondents (99%) agree that a global customer due diligence utility would help protect an institution’s reputation, reduce compliance cost, support greater efficiency and provide better data to transform the way companies make decisions.
Nearly 8 out of 10 respondents (79%) agreed they would be willing to collaborate with their peers to streamline onboarding, KYC activity and watch-list processing, and a similar number (78%) stated that they would be willing to share data to see such improvements. The same proportion (78%) felt that the benefits would outweigh the costs if they could be part of a shared service to efficiently obtain, manage and utilize due diligence collected from common customers.
Those questioned saw a wide range of potential benefits to this approach. It could, for instance, address financial inclusion by increasing the data available for a broader population of consumers to enable better decisions (39%); improve services by enabling institutions to deliver them, along with access to financial products, more quickly (35%); reduce friction during onboarding (30%); and improve profitability through increased innovation (32%) and better product pricing (30%).
The cost burden of understanding their customers and their transactions was also notable in the survey results, with three in five respondents (59%) stating that they spend $1 million or more a year on AML compliance, and 15% spending $5 million or more. Customer Due Diligence (CDD) represents a significant portion of this cost, with Brazil (61%), China (36%), the UK (34%), and Mexico (30%) each allocating more than 30% of their AML Compliance budget to CDD.
These findings highlight the fact that banks not only share the challenge of managing the increasing compliance cost, but also risk losing consumer and business deals as a result of new customer onboarding deficiencies. Despite the survey finding that 77% of financial institutions consider providing financial services to the unbanked and under-banked very important, roughly half turn away between 6% and 15% of potential individual customers (50%) and small business customers (48%) due to their current KYC or credit risk management processes. More than 40% of respondents cited the cost of collecting information as a top concern.
The results showed that financial institutions across the globe share the view that financial transparency makes it more difficult to hide illicit transactions (83%), and is a priority for company Boards of Directors (85%). The study also found that providing internal stakeholders with the information they need to make compliance risk and credit decisions about consumers quickly is seen as a critical role of compliance functions (87%).
Thomas C. Brown, Senior Vice President, Global Market Development and U.S. Commercial Markets, LexisNexis Risk Solutions said:
“There is little sign of regulatory pressure diminishing for financial institutions, and any company for that matter, as money laundering, terrorist financing and tax evasion remain firmly on global regulatory radars.
“Our survey highlights the need for greater collaboration between financial institutions around the world, and the key role that innovation plays in improving the KYC process to make it more efficient and effective. Global utilities could represent the answer to the global KYC challenge.
“A broader, global customer due diligence solution that is focused not just on compliance, but also increasing financial inclusion and financial transparency for retail and corporate customers across the financial services sector could make the process more cost effective, while simultaneously improving its robustness. By centralizing information held across the industry and increasing the standardization of data collection processes, real efficiencies can be realized and, ultimately, foster greater financial inclusion and transparency across the world.”