Smart automation for banking & financial services customer due diligence and KYC

Published: March 21, 2018

The enormity of the effort and spend for compliance is best illustrated by Jamie Dimon's speech to shareholders last year ‚ JPMC spent over $1.6 billion on their Compliance Department, employing 13,000 people to ensure they address regulatory issues and compliance. This after they paid more than $16 billion in legal penalties in 2015.

Compliance is an expensive game, but failing is even more expense by a factor of 10 at least. It is no surprise companies spend so much money on compliance. According to a Thomson Reuters 2016 survey, the average bank is spending an average of $40M+ on Customer Due Diligence (CDD) and Know Your Customer (KYC) compliance. Some are spending upwards of $300M or more annually on CDD/KYC.

The traditional CDD/KYC remediation process is slow, manual, and error prone. It's costly and inefficient. This leads to large CDD/KYC backlogs especially because when remediation event occurs. The backlogs and regulatory pressure leads many banks to hire more temporary or permanent staff throwing more money and people at the problem. At Virtusa, we have seen some cases where 85% of steps in a KYC process have an opportunity for improvement. But where there is pain, there is opportunity. So, how to get rid of the pain?

Artificial Intelligence and KYC

Smart Automation - This is a discipline of methodically improving manual processes.

Start with simple automation using robotics for quick wins in cost savings and efficiencies like name screening, client list preparation, and PEP search.

Next, look for more advanced opportunities to increase efficiency by using document scanning and interpretation technology. This utility captures important metadata like SSN, name, and address from scanned images of existing documents like corporate registration or a passport. This data can be automatically populated and verified by robots.

The Art of the Possible: The peak of automation of straight through processing (STP) " that magical, and seemingly unattainable utopia " can be had with machine learning and artificial intelligence (AI). The use of AI predictive analytics and decisioning can conduct transaction or pattern matching and analysis that automatically seek necessary information to satisfy CDD requirements. Imagine -remediation event, gather data, review, complete- all automatically.

Where to Start

First, identify the most suitable opportunity for automation. Look for a low value, high volume activity that is manual and repetitive where the data is not easily obtained. In the CDD/KYC process, look for low-risk clients to start.

Be diligent by performing a cost-benefit analysis and mark a return on investment (ROI) target to achieve. Don't forget to collect metrics to continuously measure and improve the process. Using technology that leverages robotics, BPM, and case management enable operational transformation, agility, and extensibility to change. These tools will allow you to achieve your goals and ROI.

The benefits of robotics and BPM to CDD/KYC are plentiful and powerful. Operationally, automating the manual steps speeds up the rate and throughput at the same time reduces errors, which frees analysts to more complex tasks.

Improve regulatory compliance with robots by using them to clear backlogs and scale. Plus, the audit trail and transparency from robotics and BPM are a regulator's delight. Doing this helps eliminate financial and reputational risk.

Most importantly, automating this process improves the customer experience because of the reduced unnecessary customer interactions to obtain data and allows the customer to conduct business faster. Finally, this all promotes quicker time to revenue for the bank.

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