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KYC Verification Process and Requirements: 3 Tips to Improve

Banks and financial institutions can learn from their peers that have improved Know Your Customer (KYC) operations—including the KYC verification process. Consider these strategies.

Know Your Customer (KYC) processes have become critical for banks and financial organizations racing to grow while ensuring compliance. This set of processes starts with KYC verification—a personal or corporate banking customer proving their identity—and moves on to many checks and balances designed to prevent financial crimes and fraud. The KYC process is one of the most complex and regulated endeavors in banking, involving anti-money laundering laws and a host of other regulations. Banking and other financial services institutions must constantly balance the corporate customer’s desire for speed against the bank’s need to meet stringent, ever-evolving regulatory demands that carry stiff fines.

The customer onboarding process, which includes KYC verification, has huge importance for both customer lifecycle management (CLM) and compliance.

“The best way to mitigate and reduce financial crime is to understand who you’re working with from the beginning,” noted Rhys Jones, Global Head of Banking at Vuram, during the recent Fraud and Financial Crime Europe 2022 Conference in London. “But often, the first time a customer interacts with your organization is during the onboarding process. So you can’t afford to spend six months, twelve months scrutinizing and trying to understand the customer’s ins and outs of everyday business, because they’ll get fed up. They’ll go somewhere where the process is more streamlined.”

At the same time, KYC requirements in banking represent a vital part of the overall compliance effort. The related processes banks use to meet those requirements have historically been dragged down by legacy technology, data silos, and manual workflows.

[ Where else do banks typically lose speed? Read more about how to simplify six top KYC pain points. ]

To gain speed while managing risk, banks and financial institutions must find ways to deal with those challenges, adding automation where it delivers the most value and increasing agility through things like reusable workflows.

[ Want expert advice on KYC compliance strategies? Get the eBook: Powering Seamless KYC Operations. ]

The KYC verification process: 3 ways to safely speed it up.

Jones offered several strategies gleaned from his experience leading banks and financial organizations that have optimized their KYC processes.

1. Take a holistic approach to the data lifecycle.

Let’s be clear: no financial services organization has cracked the code for how to comprehensively manage financial crime. Even the more advanced organizations are a few years into a journey that is likely to last a decade. But the road to success starts with data strategy.

In enterprise IT, the question of centralized versus federated control of data and which works better depends on the type of data you’re talking about. “Financial crime [data], we believe should be centralized,” Jones said. “Because data is today’s gold.”

An organization that can centralize data strategy can connect insights from disparate systems’ data sets—an advantage in fighting fraud and financial crime.

Banks can approach financial crime as a lifecycle having four stages:

  • Compliance - implementing governance structures and crime strategies.
  • Prevention and detection - conducting enterprise fraud management, including advanced analytics.
  • Investigation and remediation - assessing allegations, responding to regulatory requests, remedying issues, and preventing recurrence.
  • Monitoring and reporting - assessing and updating systems and reporting.
“The most advanced organizations—the banks that are leading the way in this—they’re managing to access that data at various points in real time or near real time,” in that lifecycle, Jones said. “They’re not waiting until it goes all the way through the workflow and then you pick it out at the end and you’re reporting on it. That’s an old way of working.”

2. Implement automation to do more work in parallel.

That old way of approaching KYC processes was linear. With the new way,  you can access data from disparate systems in real time to start to do more work in parallel.

For example, a bank can use process mining technology to speed up a workflow after an analytics system spots a potential risk, Jones noted. Process mining can also identify other spots in the workflow where friction is slowing things down. That way both the customer and bank get to results faster, rather than waiting around for reports. This parallel work, enabled by real-time data, is a hallmark of the most advanced organizations, Jones said.

This is where data fabric technology comes into play. A data fabric approach includes a virtualized data layer that sits on top of all a bank’s or other organization’s systems, enabling people to access any data source in the organization, in real time. The data stays in the source systems, but the bank gets a unified view. The bank can solve their data silos problem without replacing legacy systems—which is vital, since banks can’t rip and replace legacy technology that’s part of lengthy, complex digital transformation plans.

[ How does data fabric differ from traditional data integration technologies? Read also Data Fabric vs. Data Mesh vs. Data Lake and 4 Ways Data Fabric Helps Developers Gain Speed.  ]

3. Pay attention to orchestration and reusable workflows.

Banks use a wide variety of niche software solutions, such as sanction screening applications, to deal with specialized needs related to financial crime prevention. They also have access to an evolving group of AI and machine learning (ML) tools to help them better glean insights from and spot patterns in all the data from those applications. For banks, the question becomes, How do you integrate all those interesting niche technologies and take action on the insights, in a way that fits your current IT stack and ways of working?

“You want something that’s not disruptive in your organization, but supports proper decision making and proper investigation,” said Guy Mettrick, Global Industry Lead, Financial Services, Appian.

A platform for process automation that includes data fabric capabilities can aid with orchestrating those various tools, connecting niche applications and new tools to your existing systems—along with all of their data.

Look for business automation solutions that enable flexible, reusable workflows: these can be used repeatedly, and tweaked as regulatory demands evolve. These workflows pair with niche solutions in powerful ways. For example, a bank may use niche software for activities such as transaction monitoring and name screening. But once an issue is noticed during monitoring and screening, a case management solution with reusable workflows can be extremely helpful. Case management is a prime candidate for reusing workflows because every case includes basically the same steps:

  • Create a case.
  • Triage the case.
  • Assign the case to someone.
  • Review and remediate the case.

Reusing those workflow elements creates a large speed advantage for the bank, plus it improves quality.

[ How do your case management strategies stack up? Get our guide to case management fundamentals. ]

The result: A faster KYC verification process.

By applying strategies like these to streamline the KYC verification process and related KYC processes, banks can improve customer service, speed up time to revenue, and increase data transparency. This new way of working with data allows banks to leapfrog ahead in both client satisfaction and risk management.

[ Learn more about how to optimize KYC compliance strategies. Get the eBook: Powering Seamless KYC Operations. ]