Timing Plays An Important Role In Customer Risk Rating
The occurrence of fraudulent activities in the finance industry surpasses that of other sectors, resulting in a notable surge in data breaches and incidents of identity theft. To combat these criminal acts, banks need to incorporate customer risk assessments as part of their onboarding process. This can be achieved through the implementation of automated systems that provide impartial ratings based on KYC (Know Your Customer) information. By employing dynamic ratings, these assessments can be continuously updated to account for changing circumstances. Furthermore, integrating these ratings into transaction monitoring systems allows for the establishment of risk management rules and scenarios. It is imperative for financial institutions to consistently monitor their customers throughout their entire relationship to ensure the security and integrity of the financial systems.
Automated Technologies Reduce The Burden Of KYC And AML Compliance For Financial Institutions
The implementation of KYC (Know Your Customer) and AML (Anti-Money Laundering) procedures poses a notable challenge for financial institutions. These procedures are crucial but come with considerable costs, as revealed by recent reports. Financial institutions are facing both direct and indirect expenses in order to comply with these regulations. Consequently, concerns have arisen regarding the banks' capacity to efficiently conduct their day-to-day operations. Nevertheless, the integration of automated technologies can help alleviate the existing burden on financial institutions and streamline their compliance with KYC and AML regulations.
- There is an ongoing upward trend in compliance costs.
- The costs associated with compliance are continuously on the rise.
- The expenses linked to meeting compliance obligations are steadily increasing.
The global spending of financial institutions amounted to $500 million
The global spending of the top 10% of financial institutions amounted to $100 million in total
The cost related to customer onboarding experienced a 19% increase
It takes salespeople 1 ½ days per week to onboard new clients
Customer Risk Analysis
Financial institutions commonly employ three distinct approaches for customer screening.
Onboarding: During the onboarding process, financial institutions typically employ screening software to conduct a risk assessment on new customers. This involves a series of questions aimed at evaluating the customer's risk profile. If the customer successfully passes the risk assessment, their account creation and transaction capabilities are approved.
Ongoing: Financial institutions regularly conduct systematic screening in a standardized manner, especially when customers modify their account information or when updates are made to the watch list information. This ensures that any potential risks or changes in the customer's profile are promptly identified and assessed.
Real-Time: When initiating specific types of transactions, such as wire transfers, financial institutions conduct real-time screening of these transactions against watch lists. This screening occurs before the wire transfer leaves the internal system of the financial institution. Given that wire transfers are a core service provided by financial institutions and can happen at any time, this screening is performed as necessary, with quick turnaround times to ensure timely and effective risk management.
Fintech Collaboration Is Essential For The Financial Industry
Digital identity verification solutions leverage data from authorized sources such as credit bureaus and government databases to authenticate customer information. These solutions enable differentiation between customers with extensive credit histories and those with limited ones.
To enhance their customer offerings and modernize their infrastructure, banks can collaborate with Fintech providers. By tapping into the expertise of Fintech companies, banks can develop tools and services that facilitate the delivery of enhanced digital services to their customers. Implementing these solutions promptly and effectively is crucial for banks to stay competitive, combat financial fraud and identity theft, and alleviate the challenges posed by outdated KYC and AML compliance policies.
