Get to know the new KYC

Know Your Customer (KYC) is no longer just about the Customer.

Are you ready for future of KYC?  You might not be.

Why? KYC is evolving from a customer on-boarding-centric process to a management discipline in its own right that is now aligned with entire customer lifecycle, not just the start of the relationship. At same time, it’s going way beyond just the customer. The new Know Your Customer — KYC is challenging firms to get really good at managing cases and leveraging data from many sources to gain insight, react quickly, and protect a firm’s reputation.

All of this is difficult…I get it. I have managed many parts of this process in the past and understand how complex the reality of KYC can get. However, I also get that we have improved post-financial crisis by focusing more resources, picking better technologies, and creating foundation to support this expanded definition of KYC.  

So you might be wondering, what exactly is that happening? How is KYC evolving? I’m glad you asked.

Consider these facts:

  • The definition of KYC is expanding to KYCn  where ‘n’ includes customers, but also counterparties, consultants, charities and where possible your customers underlying customer.  The full ecosystem is now in review to ensure reasonable assurance standards are met and reputational and financial risks are minimized.
  • Increasingly complex risk models, board-level visibility for improved control and accountability, and a burgeoning frequency by which KYC is a critical business function are resulting in dramatically more complexity.  KYC is no longer only an ‘on-boarding event’ but rather a customer lifecycle process where Re-KYC and event driven model where ongoing monitoring of CIP, PEP, etc are business as usual.   
  • Regulatory changes, such as FATCA, MiFID II, are deepening requirements to understand more about the ‘C’ than ever before including now tax domicile and more.

As the Financial Services industry continues to struggle with serious inefficiencies in how Know Your Customer review cases are managed, most firms have done a decent job creating high-volume solutions on the retail end of the spectrum—for example, managing rules and integrations with credit rating providers. In those cases where human judgment and oversight are more paramount, that’s where it gets more complicated. It is these Enhanced Due Diligence (EDD) cases that tend to drive increased processing requirements. Of course, these also tend to fall more on the lucrative end of the risk spectrum. Firms face challenges, such as:

  • Inability to create bridges between process and data where many processing events (e.g., onboarding, renewal, adhoc) can access and manage relevant information (e.g., case histories, customer attachments, etc.)
  • Expanding definition of KYC to now being KYCn…where the same process and data discipline applies across multiple categories of ‘C,’ including but not limited to Counterparties, Consultants, Charities, and Customer’s Customer.
  • Limited awareness and collaboration to work across organizational product and geographic silos. The increasingly global nature of business and transactions requires firms to up their game when it comes to managing more holistically. Of course, this is easier said than done, especially when you must consider any local rules regarding process requirements and data privacy.
  • Responding to the unpredictable nature of what lies ahead. New products and markets, new regulations, new internal corporate policies, and evolving customer expectations all combine to create a single truth.

The future can’t be predicted. What we can do is create nimble and flexible structures that can adjust without losing goals of managing KYC processes quickly, with high degree of accountability and process visibility.

So how can you meet regulatory and corporate governance demands for greater insight into your firm’s ecosystem of customers, counterparties, and other constituents? Enable better decision making by connecting dots.  Consistently.

Michael Heffner

Practice Lead, Global Capital Markets and Banking, Appian