How to Automate KYC and AML Processes with Low-code Systems
According to a 2011 UN study, criminal proceeds from drug trafficking and organized crime amounted to 3.6% of global GDP, and 2.7% (~$1.6 trillion) of this money was laundered. The FATF regulations were established in 1989 to counter money laundering and coordinate an international response.
Low-code platforms enable the acceleration of a business’s digital transformation by enabling the quick creation of apps for various business needs for the implementation of process automation. Low-code also allows businesses to adapt and evolve with evolving business needs and regulatory requirements. More and more businesses are adopting low-code development platforms to build custom applications. A study forecasts that the market size for low-code platforms, which stood at $4.32 billion in 2017, will grow to $27.23 billion by 2022 – a CAGR of 44.49%.
The role of KYC and AML in financial services
Intense competition is a characteristic of the financial services industry. Consequently, financial institutions are under constant pressure to deliver a differentiated customer experience. Competition compels financial institutions to balance the imperative of delivering a superior customer experience against the competing requirements of managing costs, risks, compliance adherence, and operational resilience. This is a difficult mix of requirements to juggle.
Financial services firms are mandated by legislation to collect documents to comply with the framework of the anti-money laundering (AML) system, know your customer (KYC) requirements, and other client documents required for assessing risk and preventing fraud. This is a complex and tedious process for corporate and institutional clients. All of these need to be done efficiently to ensure that the quality of the customer experience is not degraded.
A superior customer experience at the time of onboarding sets the tone for all future customer-firm interactions. A superior experience leads to happy clients, reduced costs, and greater productivity.
KYC and AML in different industries and their challenges
Regulators insist on strict compliance with KYC and AML regulations to maintain secure operations in financial institutions. The challenges of AML and KYC compliance in different industries are enumerated below.
Banking
Opening an account in a bank is a laborious process and is riddled with multiple friction points. The stringent KYC requirements often lead to poor customer experience. The problems are exacerbated with customers sometimes providing incomplete data, manual tasks causing errors, and poor record-keeping with data stored in multiple departments.
Typically, banks face four major challenges in KYC compliance:
- Extended time-to-revenue due to lengthy customer onboarding. Banks now use KYC automation to leverage AI/ML technologies to speed up the process.
- Cost of large compliance teams to monitor ongoing issues and clear remediation backlogs.
- Friction in the onboarding process leads to poor customer experience.
- Hefty AML fines levied for non-compliance with AML regulations.
- KYC software can integrate disconnected systems and replace inefficient manual processes to help deliver frictionless client onboarding and strong compliance.
The challenges in complying with AML regulations include:
- Complex and tedious bank processes for investigation.
- Inaccurate and incomplete client information.
- Analytical approaches to customer risk assessment and transaction monitoring lead to high rates of false positives.
- The proliferation of new banking products/services complicates real-time detection and prevention.
Capital Markets
The initial thrust of KYC and AML regulations was focused only on banking clients. Lately, capital markets have tightened client due diligence (CDD) standards after instances of money launderers using market products to disguise funds. Although some AML and KYC processes from banking are adapted for the capital markets, the scale of the processes is quite different. Capital markets and banks have different client relationships. Capital market clients range from large international financial/banking institutions to small local corporations. Also, transactions often involve multiple parties. Key AML and KYC challenges for capital markets include:
- Compliance with broker-dealer monitoring requirements.
- Delivery versus payment(DVP) and receive versus payment(RVP) requirements.
- Post-trade reporting.
- Complying with legislative requirements (example: MiFID II in the EU).
- Managing counterparty risk.
AML software enables comprehensive and ongoing AML screening of all customers to instantly raise an alert on any changes in the risk profile.
Insurance
Like other financial institutions, insurance companies are also exposed to risks from money laundering, tax evasion, terrorism financing, and other types of financial fraud. Insurance firms are also, therefore, required to comply with industry-specific KYC and AML regulations.
The KYC and AML challenges for the insurance sector include:
- Stringent customer acceptance policies.
- Lengthy customer identification procedures.
- Diligent monitoring requirements for client transactions.
- Assessing and managing risk.
Retail
The traditional retail stores and e-marketplaces depend on multiple other firms and third-party suppliers for their operations. Retail businesses need to maintain transparency in their relationships and also maintain a risk-free customer portfolio. To this end, retail businesses need to undertake due diligence for their customers and trading counterparties. The KYC/AML challenges for the retail industry include:
- Verification of business data and registration documents of multiple business counterparties.
- Background AML screening by examining global watchlists, sanctioned entities by local government/international enforcement agencies. Anti-money laundering software can help ease this process and raise alerts on suspicious activity.
- Verification/screening of the ultimate beneficiary.
Public Sector
AML measures in the public services domain target funds from criminal activities – extortion, embezzlement, fraud, etc. Targeting money laundering of criminal proceeds deprives criminals of the opportunity to profit from the crime and, in the long-term, helps to end crime.
The key AML challenge in protecting public-sector interests is the diligence required to maintain the integrity and stability of the international financial system. AML automation can speed up AML and fraud detection processes, check for true and false matches, and raise suspicious transaction reports for true match records.
How can low-code systems automate KYC and AML processes?
Low-code applications are built using visual processes, enabling easy collaboration between the end-users and the application developers. Also, low-code does not require a data migration to a new proprietary data model. Data can be accessed in its current format and brought onto the platform for users and AI to run processes to complete tasks.
Detecting financial crimes involves monitoring sanctioned screenings, examining suspicious activity reports, alerts from detection engines for transactions/processing, and customer risk assessments.
These connected processes can be managed efficiently only if they are all on the same platform. Elements built for a particular application – for example, suspicious activity reporting – can be used on any project in the organization. The organization can derive greater business value through collaborative functioning.
A low-code platform can transform the KYC and AML processes by:
- Enabling the quick design of applications to manage KYC workflows.
- Help identify portions of the KYC workflow that can be eliminated or improved.
- Automation of processes with AI/ML, RPA, BPM, IDP, and other technologies.
- Low-code automation platforms can be used in the cloud, on-premise, or hybrid mode – providing businesses with flexibility in planning their deployment model.
We can help!
The competitive nature of the banking sector enjoins the banks to deliver a world-class customer experience. The first step in achieving this is the automation of banking workflow processes.
Autonom8’s workflow automation solution for banks and other industries is nimble and enhances operational efficiency, enables compliance, and helps gain a greater understanding of client needs for delivering a superior customer experience.
You can build your end-to-end customer workflows visually – on our A8Flow platform. Click here to schedule a demo.
Frequently Asked Questions
KYC is the process for financial services firms to verify the client’s identity. The firms are required, by law, to comply with KYC requirements. Although applicable for most businesses, KYC regulations are especially stringent for firms in financial services, banking, and other allied businesses such as insurance, equities trading, etc. The KYC system requires clients to prove their identity with legally admissible evidence. Verifying the client’s identity is undertaken to prevent the possibility of having business relations with clients who might be corrupt, money launderers, etc. AML regulations comprise the set of laws, regulations, and procedures to prevent criminals from disguising in illegal ways to obtain money as legal money. The AML laws target criminal activities such as market manipulation, tax evasion, trade-in banned goods, etc. AML laws are instituted within government organizations and financial institutions to monitor and prevent fraudulent financial activity. Financial institutions monitor customer deposits/transactions to verify that they are not a part of a money-laundering plan. Financial institutions verify the source/destination of large sums of money, report huge cash transactions, and monitor other suspicious activity. Financial institutions are also responsible for educating their clients about the AML system. The regulators ensure AML compliance by auditing financial records for suspicious transactions. Considering the complexity of AML compliance and the penalties for non-compliance, AML is a priority for every financial institution. To leverage technology and ease the process, many financial institutions utilize the services of an AML software vendor. A low-code system is a novel approach to software development. There is little to no coding required to build applications for business processes in Low-Code. A low-code development platform does not require the users to have coding knowledge or software development experience. Through visual interfaces and drag-and-drop functionalities, the platform allows the creation of mobile and business apps. Low-code platforms are gaining greater adoption across industries because they facilitate a faster and easier route to software development. Skilled software developers can as easily use it as by the lay employee (citizen developers in industry parlance). Low-code platforms enable the acceleration of a business’s digital transformation by enabling the quick creation of apps for various business needs for the implementation of process automation. Low-code also allows businesses to adapt and evolve with evolving business needs and regulatory requirements. More and more businesses are adopting low-code development platforms to build custom applications.What is KYC, and how does it work?
What is AML, and how does its work?
What is a low-code system?
