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Why Anti-Money Laundering & Know Your Customer are Ready for Digitisation

By Wayne Johnson | Thu 26 January, 2017
AML KYC Process Ready for Digitization | encompass blog

Why Anti-Money Laundering & Know Your Customer are Ready for Digitisation

by | Jan 26, 2017 | All Blog Posts

In a report published in June 2016, McKinsey Global Institute suggest that industries displaying high digital intensity benefit from growth in profits and wages.

Yet the same report estimates that Europe has captured just 12% of digitization’s potential and “accelerating digitization could add trillions of euros to economic growth in less than a decade”.

The UK leads Europe having already captured 17% of digitization’s potential. Financial services, a major contributor to the UK’s economy as measured in gross value added and employment, is identified by McKinsey as a sector that scores highly in terms of its digitization. However, the sector could do more and accrue greater benefits by digitising business processes. The report makes a number of recommendations on how companies can capture some of the enormous value available to them, including:

  • digitize internal operations;
  • be continuously vigilant to spot the new technologies, startups, and disruptions brewing on the horizon;
  • use the latest digital tools to improve efficiency;
  • digitize end-to-end processes to reduce costs and optimise resources;>
  • put digital tools in the hands of employees to ramp up productivity.

The September 2016 Financial Services Survey from CBI/PwC reports a sharp drop in optimism with banks’ costs increasing and employment falling sharply, while competition and regulation remain the largest barriers to their growth in 2017. Reinforcing sentiments voiced by McKinsey, the survey notes that Brexit offers an opportunity to accelerate transformational change including the deployment of FinTech solutions.

One area of business operations in need of transformation and with potential to capture value from digitization is compliance with anti-money laundering regulations. In response to increasing regulatory oversight and supervision many firms have created processes that combine point computer systems coupled by manual work of reviewing and duplicating information, and because these are not end-to-end processes they remain fragmented and inefficient. This inefficiency is evidenced by results of a survey of 772 financial institutions and 822 corporates conducted by Thomson Reuters in early 2016 which found:

Overall the average time to onboard a client was reported to be 26 days. This figure had increased by 6 days in the 12 months preceding the survey and respondents from both FIs and corporates expect this to increase by a further 6 days over the coming 12 months”.

Experience with such poorly designed processes is that they are subject to operator error that create wasteful cycles of re-work and the need for high levels of supervision. Thomson Reuters’ survey supports this view:

“… on average a client is contacted 4 to 5 times to obtain the necessary documentation. The reasons for this include inconsistency with respect to requests; requests for different documents; different parties making contact; and a lack of any standard in requirements.

This despite the fact that many of the documents required in customer due diligence and enhanced due diligence required by anti-money laundering regulations are available as streams of digital content.

Know Your Customer processes made necessary by anti-money laundering regulations are just the type of internal operations identified by McKinsey as opportunities for digitization and automation. Our customers’ experiences confirm the approach: by redesigning Know Your Customer as end-to-end processes and putting the latest digital tools in the hands of employees, their due diligence analysts become on average five times more productive than when they relied on older, fragmented and manual processes.

This approach of identifying poorly designed processes and automating them to take advantage of digitized information is how much of the benefit identified by McKinsey will be realised.

about encompass

Founded in 2011 by entrepreneurs Roger Carson and Wayne Johnson, and operating from the UK, encompass is the creator of unique, innovative Know Your Customer (KYC) software for banking, finance, legal and accountancy that enable better, faster commercial decisions. The company is driven by the belief that the best decisions are made when people understand the full picture.

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Author: Wayne Johnson

Wayne co-founded Encompass in Sydney and took the Encompass product to market there in 2012. Since then, as CEO he has led the international expansion of Encompass, including the launch in the UK in 2015 and Singapore in 2018, and recognition as one of the UK's most influential RegTech firms. Prior to Encompass, Wayne was co-founder and CEO of Software Associates, until the company's successful exit to a Hong Kong listed Company.

LinkedIn Profile | Wayne Johnson

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