The amount of money laundering that occurs each year is equivalent to as much as 5 percent of global GDP, according to the United Nations Office on Drugs and Crime (UNODC). The vast majority of these illicit funds pass through the financial system. This creates a challenge for financial institutions in knowing the sources of client funds over the full period of the client relationship. Banks are therefore relying increasingly on periodic know-your-customer (KYC) reviews (as part of ongoing due diligence) in compliance frameworks. However, the KYC process often remains highly manual, which makes it expensive and prone to errors.
Banks typically employ around 10 percent of the workforce in financial-crime-related activities. KYC reviews are often the costliest activity. They can be undertaken annually; three- and five-year reviews are also common, with event-driven actions prompting additional reviews. In addition to the frequency, the required resources for outreach, identification, verification, and risk processes all add to the cost.
While most banks have automated some aspects of reviews, few have adopted end-to-end straight-through processing (STP), which can make a significant difference in efficiency. To do this, banks can adopt a strategic mindset and acquire or develop needed technical and organizational capabilities. Implementation and scaling of STP can be a complex undertaking, but leading banks have shown that STP can significantly boost review effectiveness, improve customer service, and enable closer alignment with regulatory obligations.
Moving from highly manual KYC reviews to STP is a challenging task requiring considerable commitment and resources. Banks capable of astute decision making and effective implementation, however, have generated significant benefits. They have become more efficient and effective in combating money laundering and financial crime, improved regulatory compliance, and enhanced their customer and employee experience. You couldn’t ask for more from an operational improvement.