bankingciooutlook

Three Key Technology Trends Reshaping KYC and AML Compliance

Banking CIO Outlook | Monday, January 04, 2021

Process efficiency can be enhanced by using AI-enabled workflow automation that minimizes FIs' staffing and remediation costs related to client on-board processes.

FREMONT, CA: The best KYC program consists of a Customer Identification Procedure (CIP) to collect and validate data. Documents may be forged, ownership structures may be covered, and tracking transactions with practices such as commercial money laundering may become challenging. This makes it imperative for financial institutions (FI) to implement better technologies to help compliance teams and risk teams.

Here are three technology trends reshaping KYC and AML compliance:

Social biometrics

Social biometrics has the advantage of capturing information about millennials, under-banked, and unbanked, who have a little credit history but often have a social presence.

Another benefit of social biometrics is that it integrates ever-changing information from the internet that provides a comprehensive picture of exposure. When used in conjunction with traditional AML and compliance credit and KYC data, social biometrics offers a powerful way for banks to assess risk and identity theft and fraud.

The FIs can benefit greatly by utilizing these technologies in their KYC/AML operations. These systems can greatly help enhance the KYC/AML process's efficiency and result in substantial cost savings for FIs. Also, the customer experience for FIs would be improved.

Artificial intelligence

AI is the foundation of many new technologies for KYC and AML. AI consists of several branches, such as machine learning (ML), natural language processing (NLP), neural networks, and fuzzy logic. This technology enables systems to think and automatically train and improve the accuracy of the system's prediction output over an amount of time.

An AI-based system can provide a changing questionnaire that can be adapted to the customer's response. In addition, the Intelligent Process Automation (IPA) functionality of the system would help greatly reduce the KYC profile update of FIs. It would also allow the ability to detect KYC-based discrepancies based on real-time transaction monitoring. Finally, process efficiency can be enhanced by using AI-enabled workflow automation that minimizes FIs' staffing and remediation costs related to client on-board processes.

Blockchain

Blockchain may prove to be a positive disruptor with the possibility to reinvent and reimagine KYC/AML. It will allow financial institutions to keep pace with growing regulations, swiftly validate customer information for KYC, delve deeper to the ultimate beneficiary owner, remove duplicate processes, and provide a more consistent customer experience for on-boarding.

Since information is not stored in a central location, it is almost immune to hackers, making blockchain extremely safe and beneficial to financial transactions. Blockchain can help authenticate the customer's identity, with details such as the source of the funds, the nature of the business, and provide thorough assessment along the way. Each financial institution must perform the KYC/CDD process and upload detailed research information to the central registry that stores digitized data marked to a unique customer identification number. Using this reference number, firms can provide new services to customers in the same banking relationship since they have access to the data stored to perform due diligence.

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