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KYC onboarding still a pain point for financial institutions

Dominic Mac

16 Oct 2017

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Longer onboarding times and rising costs are revealed in our latest KYC survey, highlighting the pain still being felt by financial institutions when dealing with new clients.

A global survey of the Know Your Customer (KYC) challenges faced by financial organizations has painted a none too pretty picture, with the average onboarding time now up to 26 days.

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Worryingly, half of all respondents think the time taken to onboard will increase in the coming year.

C-suite executives are having to devote more time to customer due diligence (CDD) issues, while staff numbers and spending overall are also increasing in order to ensure KYC compliance.

These are worrying figures, but it doesn’t have to be the case when automation is offering solutions for streamlining KYC procedures, reducing head counts and culling run-away costs.

Download the 2017 KYC report — Is Know Your Customer (KYC) compliance all doom and gloom for financial institutions?

A comprehensive KYC survey

Our survey explored the daily KYC-related pain points experienced by financial institutions (FIs), with 1,023 respondents drawn from the UK, Germany, South Africa, United States, Australia, Hong Kong, Singapore and France.

A range of financial organizations was consulted, including global and regional investment and retail banks, hedge funds, asset managers, insurers and brokers/dealers.

The findings produced a truly holistic picture of the real-life challenges that persist. These are the main points of interest:

  • Costs

Costs are high and FIs across the globe claim that they are rising.

Average annual spend on global CDD/KYC (including labor and third party costs) is reported as US$48 million. Drilling down, banks are spending significantly more than investment managers (an average of US$70 million versus US$23m).

The approximate annual amount spent to onboard new clients globally averages US$40m and FIs report an average increase of 15% since last year’s survey. Banks reported a 20% increase and investment managers a 13% increase.

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  • Staff and the C-suite

One aspect driving increased costs appears to be higher staff numbers, with 43% indicating an increase in CDD/KYC staff since last year (61% of banks reported an increase as opposed to 36% of investment managers).

Turning to the amount of time and attention that C-level executives are devoting to CDD/KYC, nearly half (48%) indicated an increase in the 12 months preceding the survey.

  • Time to onboard

Onboarding times remain lengthy, with banks reporting longer average times (30 days) than investment managers (23 days).

The global average across both is 26 days, up from an average of 24 days reported a year ago.

Worse, 50% of the FIs surveyed expect the time to onboard to increase in the 12 months post-survey.

Watch video — KYC Pain Points for Financial Institutions: A Global Perspective

  • Ongoing monitoring

The time associated with refreshing client records is also excessive, with the global average standing at 20 days.

Looking at the refresh strategy, a quarter of FIs schedule periodic checks (for example, once a year).

A paltry 12% dynamically check their records so that they are always up to date and 9% have no formal refresh process. This means that nearly 90% of FIs across the board are not ensuring that their client records are always up to date.

  • FATF 2012 recommendations

The percentage of FIs that have proactively made changes to their CDD/KYC processes as a result of FATF 2012 recommendations is low at 37%.

A further 39% indicated that they are “considering making changes” and a sizeable percentage (23%) indicated that they are not planning any changes.

  • Key challenges

Globally, the key challenge when conducting CDD/KYC is a lack of people resources, selected by 34% of FI survey respondents.

The next biggest challenges were a lack of time available and the volume of regulatory change, both selected by 33% of respondents.

 

Download the 2017 KYC report — Is Know Your Customer (KYC) compliance all doom and gloom for financial institutions?

The drivers of KYC change?

Given this set of challenges and pain points, what exactly are the most influential issues prompting FIs to make changes to their CDD/KYC processes?

According to survey respondents, the key driver (cited by 72%) is a ‘change in regulation/legislation’, followed by ‘financial penalties’ (68%) and ‘damaged reputation’ (66%).

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Digital solutions

Whilst our survey reveals an increased KYC burden, it’s not all doom and gloom as the digital solution space is offering answers to these dilemmas in the form of end-to-end workflow solutions.

Automation is the key to streamlining KYC procedures, reducing headcounts and culling run-away costs.

Compliance costs have been rising and will continue to do so as firms overhaul systems and digital solution spend increases.

But when these investments come to fruition, we expect to see compliance costs and time reduce, and efficiency and client satisfaction increase.

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