Major Challenges of KYC Monitoring

Banking CIO Outlook | Wednesday, December 01, 2021

Fremont, CA: Many businesses have gone to the trouble of digitally transforming their onboarding, but they are wasting huge sums of money and man-hours on inefficient processes when it comes to ongoing monitoring. Despite the fact that KYC monitoring is critical to ensuring compliance with Money Laundering directives, where does it all go wrong, and what can firms do to implement change?

Money and Time Wasted on False Positives

A false positive occurs when a legitimate customer's name matches one on the Politically Exposed Persons (PEPs) or Sanctions list.

False positives are a major burden on regulated firms because time and money are spent investigating false positives that are frequently unwarranted. However, if companies fail to screen for PEPs and sanctions, they may face significant fines from the regulator.

For a typical financial institution monitoring KYC, 75-85 percent of the alerts are false positives, with up to 25 percent reviewed by level-two senior analysts (source). Working through each alert is time-taking and complex, and it costs an average of £20 each time, adding up to a hefty bill when a Financial Services company has millions of customers to screen (source).

Lack of Detail of Alerts Result in Inefficiencies

When a corporate customer appoints a new director or changes ownership, an alert is frequently generated. One major issue, in our opinion, is that the alerts do not provide enough detail for a compliance officer to make a real-time risk-based decision. Some monitoring solutions, for instance, will alert one to a change in company directorships but will not reveal who the new directors are, requiring a compliance officer to go back into the system and investigate.

A simple solution to this problem is to work with a platform that provides the level of detail as well as actionable information that supports one's business and reduces one's risk exposure.

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