The customer verification challenge

In an era of tight budgets, a rising tide of cyber threats and ongoing geopolitical turmoil, Know Your Customer (KYC) processes are more important than ever. How do your compliance team’s efforts compare?

KYC processes have been a mainstay of the compliance function for 20 years or more, serving as the first line of defence in safeguarding businesses from money-laundering and the various other financial, security and reputational threats out there.

But 2023 is threatening to upset the apple cart. Greater scrutiny from regulators is resulting in a weightier burden for compliance teams to contend with, at a time when the rise of automation is also unsettling familiar processes.

So, what are KYC specialists focusing on right now? And how are they facing up to the challenges on various fronts?

In this tough economic environment, it would seem that environmental, societal and governance considerations (ESG) are slipping down the agenda for compliance teams, as they focus instead on securing their organisations’ finances. 

This is also reflected in the challenges and pain points that KYC specialists have been reporting. Sources of potential costs – including regulators’ fines and losses via cyber crime – crop up again and again as particular worries, indicating that company finances are absolutely top of mind right now.

It is interesting to note here that the proportion of compliance professionals citing ‘staying up to date with new regulations’ as their biggest challenge has declined slightly over the past 12 months. That said, this still remains the problem that they believe they are most likely to get picked up on during a compliance audit (48%), which indicates that while regulatory changes may have slipped down the agenda slightly, they still remain a significant long-term concern.

So, what solutions are compliance teams turning to? For instance, are they perhaps tempted to try out new technologies, or to bolster themselves with specialist knowledge?

Of course, as budgets tighten, they will have to weigh the value of these options against the cost involved.

Even if budgetary constraints make it unlikely that KYC professionals will be reinforced by the likes of artificial intelligence (AI) any time soon, plenty of teams will be keen to experiment. After all, they are still spending a significant number of man hours on routine KYC checks. The efficiencies offered by AI have an obvious appeal.

This may well be the crucial point. KYC is now so firmly embedded in so many businesses’ operations that delays and operational inefficiencies risk having a significant knock-on effect. It’s something customers can easily end up noticing too. 

This raises a difficult question: how much longer will it be before we reach a tipping point, where investing in AI and other forms of time-saving tech becomes crucial to the success of the KYC function? It will be down to business leaders to make that judgment call.