A compliance manager’s job is never easy. Between the push of increasing regulatory changes and the pull of decreasing budgets amid demands for faster reviews, it’s hard to keep processes flowing. And there is nothing fraudsters like more than exploiting weak anti-money laundering (AML) protections.
If the time is right to introduce efficiencies into your compliance program, you are no doubt inundated with pitches for all sorts of bells and whistles. Below are some tips on navigating the waters of automated Know Your Customer (KYC).
Introduction to automated KYC verification
Know Your Customer (KYC) is the due diligence process followed by banks, financial institutions and other related companies to verify the identity of their clients and assess the potential that those clients will commit money laundering and fraud. A growing number of industries are being mandated to perform a KYC review at onboarding, and to periodically check to see if mission-critical information has changed, such as ownership or business locations.
Traditionally KYC has been a manual-intensive process. It’s often required anywhere from a handful to dozens of documents. Now, thanks to technology, much of the data collection required by regulators can be collected, verified, and stored electronically. And the process can increasingly be managed with automated tools.
The challenge of KYC
The creativity of criminals can never be underrated. For this reason, KYC is now required across a growing number of industries. Depending on geography, industry, and other risk factors, the obligations can be extensive. And expensive.
Most large financial institutions, and other regulated verticals like casinos and insurance companies, are used to having compliance be a significant cost center. They tend to budget and staff accordingly.
For many other companies, including startups, law firms, and auction houses, the requirements can be trickier, especially when there are cross-border requirements. Many jurisdictions, like the United States, have federal regulations, state regulations, and industry requirements. On the extreme end, India has some 2,000 regulatory bodies across all levels of government.
The role of automation in KYC
Put simply, automation allows companies to manage more with less. Documentation can be handled more efficiently and securely, team members can better focus on value-added tasks, and customers can be onboarded faster.
Considerations for automated KYC verification
If you are looking to improve your existing compliance program or are just starting, these are polymome features you will want to understand and prioritize for your operation.
Identity verification process
For most college students, identity verification meant “show an ID to a bouncer at the local club.” These days, automated verification is closer to a science. Tools operate with olympic-level speeds and engineering-level precision. Machine learning, computer vision, and automated algorithmic scans make quick work of validating government-issued IDs, scanning selfies for liveness and ID matches, and cross-checking identity databases across the globe.
Many businesses consider speed to be the most impactful feature of automated verification tools. In a competitive digital marketplace, a customer who cannot gain access to a website fast enough due to data processing times will simply leave.
Automated watchlist screening
Document collection and verification is only the first step in KYC. The second part is compliance screening: identifying individuals with a potential risk for money laundering or other financial crimes. This risk can be based on an individual’s history, or their relationships with others involved in criminal enterprise, negative media, or geo-political figures. Key watchlists for scanning include global sanctions, political figures, news, and court actions.
By automating the screening process, businesses can usually access far more databases than they could review manually. This gives them a much more robust set of information about any individual or group of people.
Handling false positives and negatives
One problem with screening—whether manual or automatic—is that the outputs are only as good as the inputs. An applicant named “Steve Smith” from Chicago or “Maria Garcia” from Mexico City will produce hundreds, if not thousands, of potential matches. Collecting more details can help, but there will always be false positives and false negatives. These usually require review and escalation, and can eat into work time.
A strong and tested system with built-in decision-making automation can eliminate many of these delays. The better the tool, the less likely it will miscategorize the wrong people as matches or incorrectly reject good customers.
Data privacy and security
By removing human eyes and manual clicks from the verification process, automated systems make data more secure than ever. And just in time: Privacy and security are the subject of many regulatory enforcement actions, now that consumer privacy laws are on an upswing in state governments across the U.S., following the lead of the European Union.
Determining that a system is fully compliant with all local regulations within all the geographic locations of your company and customers, both now and in the future, is key to finding a compatible compliance partner.
Integrating AI and machine learning
Artificial intelligence, or, more specifically, machine learning, is primed to be able to superpower automation. With its ability to adapt and “learn” from exposure to more and more data, the applicability is neverending for verification as well as other KYC requirements like screening and transaction monitoring.
AI may be especially adept at sifting through false positives from screening and determining which results are obviously not legitimate, for example, a Cuban restaurant with the sanctioned jurisdiction in its legal name. A simple Google search can nullify that result; with its endless storage, AI doesn’t even need a browser.
Benefits of automated KYC verification
Automated KYC verification is a boon to any business because it is cost-effective, improves the customer experience, and offers greater regulatory compliance.
Efficiency and cost savings
Unless it is a company’s source of income, AML will always be considered an unglamorous cost center. It is heavily reliant on people, requires significant training, and the work is often repetitive. It’s usually one of the first things to be cut when times get tough. For many businesses, the solutions involve cutting positions or moving them to less-expensive locations. Automation is an even more attractive option.
AI is an especially cost-effective alternative to hiring, training, and retaining costly compliance staff. Plus, staff can be retrained alongside AI to accomplish even more.
Improved customer experience
In general, automation provides exactly what customers want— a faster, more secure onboarding experience that is less cumbersome and requires less interaction. Plus, automation has greater language fluency and better image-reading skills than humans. A frictionless experience is optimal for everyone.
Regulatory compliance
One of the most challenging aspects of compliance is remaining flexible when new laws and requirements are rolled out. A one-word change in a rule can have a ripple effect down the line of a compliance operation. Automation, unlike an analyst, doesn’t require overtime to do more work or re-do what was already done. Automation also makes tracking, reporting, and escalating issues seamless.
Optimizing workflows by implementing automated KYC
For Instacart, a major food delivery app in North America, automation helped move beyond a cumbersome manual gig worker identity verification system that was holding back the company from growing.
Data collection
Prospective shoppers submit their driver’s licenses and selfies for Persona to review and to ensure that the individuals are safe partners who, in turn, will protect customer information and privacy. In as little as an hour, a shopper can be verified and on their way to a new job.
Persona’s platform is especially helpful for users encountering problems and delays with verification. Different flows are deployed depending on the situation. And enough information is provided to guide them through the process without providing so much that a bad actor knows how to thwart safety control and gain access.
Data processing
Periodic re-verification of users helps Instacart protect their accounts and also ensures their IDs are current and individuals are known to the company. Users submit selfies and Persona compares to the original IDs on file as well as checks for image liveness. The information is also checked against fraud lists and known bad actors can be blocked or submitted for further manual review.
Want to get started adding an automated compliance solution that fits the unique needs of your business? Contact us to learn more or get started for free.
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