Latest KYC Banking Trends & How To Steer Clear Of Regulatory Penalties

Banks are one of the most highly regulated business entities on the planet because of their capabilities to process wealth. In the last decade, major players in the banking sector have experienced regulatory noose tightening around their operations. In this evolutionary phase, banking institutions need to comply with the regulations of the regions they are operating out of. 

Despite immense development in both theory and application of KYC banking practices, entities need to be on guard, at all times, to prevent monetary penalties and reputational damage. This has led to drastic changes in the banking infrastructure to comply with changing compliance regimes for streamlining operations across the board.

What is KYC Compliance

KYC compliance is an adherence to the best practices of knowing relevant information of the clients before and after their onboarding. It is mandatory for banks and other financial institutions to make sure their services are not abused for illegal activities. On a broad level, KYC banking compliance is a dynamic practice with on-going diligence to make sure these establishments do not get into business with politically exposed persons (PEP) and organizations. 

In KYC banking, the process of client onboarding is dependent on multiple departments including sales, compliance, legal, credit, and operations, averaging at $6000 per new client.

The information provided by clients is run through various databases and watchlists for AML and CFT compliance.

As far as KYC requirements for banks are concerned, banks need to know the Name, Date of Birth, Address, and Identification Number of a client before preliminary onboarding. Once the information checks out against internal and external scrutiny, the account becomes fully functional for the client.

Emerging Trends In KYC Banking

For years, banks have relied on legacy tools for client onboarding. This includes a physical visit to the bank and manual data extraction and processing which took a lot of time and labor hours. With the digital shift, banks embraced the change but the systems they adopted were not adequate to handle the bulk of data while complying with various regulations and statutes.

In 2021, this has changed. Banks are vigilant, more than ever, to ensure they are onboarding clients with legitimate wealth and clean reputation to save their own skin.

Fortification Of Personal Data

Organizations often opt for convenience over diligence to minimize the friction between regulatory roadblocks and smooth onboarding of clients, and banks are no exception. This has often led to cybercriminals invading the data and plundering personal information of the clients wholesale.

According to Fintech & IT Benchmarks respondents, an average central bank spends around 16% of its IT budget on cyber security with lower and higher limits at 3% and 42%, respectively.

The current KYC banking regime is under a serious reconstruction with fortification of data to be the first priority of many banking organizations. 

Revision Of Regulations

With the boom of FinTech startups and disruptive banking entities, regulators are in a dilemmatic position. On one side, there is the ease and convenience of onboarding and service dispensation in a remote environment. Contrary to this, there are no rainbows and sunshine at the other side of the spectrum where individuals and business entities abuse this freedom to go through the security blocks.

Deloitte made a list of banking trends that would dominate the year 2021 and listed supervision of digital transformation and technological innovation on the first spot.

KYC banking has already seen stringent rulings and guidelines in both conventional and regtech settings. This trend seems to be going on because of the development of new products and services and the means for their provision.

Adoption Of Artificial Intelligence For Client KYC Verification

For Client KYC Verification – Personal Identifiable Information (PII) was once the gold standard for verification and authentication. Now that the cybercriminals have clawed their way into the personal digital accounts of millions of people evidenced by the recent massive data breaches, it has rendered the then gold standard obsolete. Information like passport numbers and social security numbers are up for grabs in the black market for cents on a dollar.

A report from Wells Fargo had highlighted that Artificial Intelligence through RPA will replace over 200,000 banking jobs, including compliance and online customer service.

The static means for verification are being replaced by dynamic security checks and verification using artificial intelligence algorithms. They can blaze through a large chunk of data in record time while doing authentication and verification along the way.

Automation Is The Way Forward

Artificial Intelligence has bridged the gap between conventional technology and the human element that was needed for smooth operations. Since regulations are evolving at a lightning speed, it would take tremendous manual labor and time to process what is KYC banking information. This will seriously hamper banks’ capabilities to onboard clients with ease. With automated smart tools, it will be easier for banks to dispense services in a smooth fashion while keeping away from reprimands and fines.

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