Conducting corporate Customer Due Diligence (CDD) can be varied and complex work that often requires analysts to interpret information before making decisions about what to do next.
Managing this at scale across a global and diverse customer base brings additional challenges and risks, such as quality, completeness and consistency. Operations become costly and untenable for risk professionals to control. Without control, outcomes become inconsistent and lacking in quality. Too often in Know Your Customer (KYC) due diligence, these difficulties spill out to undermine the effectiveness of the control environment and can negatively impact the end customer experience.
Within many financial institutions, multiple functions across business operations and technology are reviewing how to best harness data and technologies to improve the effectiveness of KYC due diligence while reducing costs.
An immediate challenge is how to marry the technologies and workflows to trusted external data sources. Based on our engagements with customers around the world, we see some common themes arise in discussions with the senior leadership of these functions.
Integration is commonly identified as the easiest approach. Many data sources offer an API as a means of delivering their data, so the financial institution can directly, or through its technology provider, integrate this directly to their workflow or case management tool.
As an analogy, this is like having your groceries delivered. The convenience is obvious, but you are left with the work of preparing, cooking and then cleaning up after your meal. Having the data is a great start but without transforming the work of due diligence, problems of cost, control, consistency and customer experience remain largely unaddressed.
For KYC on corporate entities, access to a single data source is also unlikely to suffice. So, the bank or its vendor must build and maintain code to integrate to multiple APIs. A concern here is that the system integration costs undermine prospective savings in KYC operations costs.
Aggregation of multiple data sources into a single supply is a well-proven business model. This is because once the cost implications of integrating to multiple APIs are recognised, the next logical suggestion is integration to a single API provided by a data aggregator who does the work of combining data sets. Traditionally, aggregation has focused on combining data sets or attributes with respect to specific entities.
To continue with the analogy, this is like getting a meal delivered. The convenience of the service must be weighed against the limit of having to order from a fixed menu, the time it takes for the meal to be delivered, and the reality that you are left to clean and wash up.
Returning to my point that analysts must interpret information before making decisions about what to do next, aggregation alone does not necessarily reveal or illustrate relationships between corporate structures or across different categories of data. When analysts are left to navigate through complex data, the work of due diligence remains costly and difficult to control.
Some workflow vendors offer integration with a data aggregator, which can be valuable in simple retail scenarios of specific customer populations. When it comes to unwrapping complex ownership structures, or verifying information from independent reliable sources, it’s essential that the compliance mandate is not overlooked. Questions can arise when areas of the bank with limited KYC domain knowledge position this cost or speed above satisfying regulatory obligations for due diligence.
Risk professionals raise concerns of material outsourcing: is the bank undertaking due diligence within the spirit of regulations if it relies solely on ‘the answer’ in the form of information from a single external source?
Due diligence requires that risk decisions are made on data that accurately reflects a customer’s current situation. For banks to leverage the benefits pre-packed premium data sets, analysts require simultaneous access to primary sources such as registries, regulators and listings where changes to a customer’s situation are first recorded.
Automation is unique, in that its impact on the work of due diligence is transformative. Intelligent process automation (IPA) applies decisioning about what data is required, when and from where the bank’s controls allow it to be sourced. Beyond aggregation, intelligent process automation interprets facts ascertained in the aggregation process and applies them to subsequent stages of discovery – traversing public, premium, screening and identity verification (IDV) data sets in a single work flow to enable straight-through processing (STP) or handling by exception.
To revisit our dining analogy, automation is like having a full complement of house staff. These helpers go shopping, they include a professional chef who understands your dietary requirements, prepares fresh meals and presents these at table when you are ready to eat, and then staff clear the table, wash dishes and put everything back in cupboards.
Ultimately, retrieving data and documents for KYC is a complex process which needs to combine, integration with aggregation and intelligent process automation – specific to the domain of KYC data.
Building on the pillars of integrating to multiple data sources, including aggregators, Encompass automates the work of due diligence. True due diligence is complex and difficult work. It includes checking facts against primary sources of regulators, registries and listings to ensure and prove that risk decisions are made on current data. Then, fully unwrapping corporate structures, including those that cross national borders, to identify Ultimate Beneficial Owners (UBOs). Then screening those individuals against sources of information on Politically Exposed Persons (PEPs), sanctions and adverse media. Additionally, as requested by our customers, Encompass integrates with new and additional sources.
By automating this work, Encompass reduces costs of KYC operations, maintains controls established by risk officers, ensures consistency in due diligence and accelerates operating cycle times while reducing client outreach to maximise the customer experience.