To Improve KYC/AML Due Diligence Efficiency, Throw Out the Manual

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Ongoing global uncertainty means that companies continue to tighten their budgetary belts, and compliance teams are feeling the pinch. Headcounts are stationary or shrinking. And yet the compliance department is being asked to step up critical due diligence processes, such as anti-money laundering (AML) and know-your-customer (KYC), that protect the business from regulatory missteps and reputational damage. “Do more with less” is what’s being communicated, directly or indirectly, so making these processes more efficient and streamlined is increasingly urgent.

But the degree of manual effort often required by these processes is a serious obstacle to greater efficiency. Manual tasks like reviewing and cross-referencing identification documents or checking against sanctions and watchlists are tedious and time-consuming. They’re also prone to errors, such as false positives, which occur when legitimate individuals or transactions are incorrectly flagged as potential risks. Fixing these errors slows down due diligence even more, as information is re-verified and re-validated to confirm that it belongs to the right company and provides the right context regarding material risk.

The ways in which manual effort undermines compliance efficiency can have far-reaching consequences for businesses. It creates delays in completing transactions, prompting customer dissatisfaction and potential loss of business. It can damage a company’s reputation by leading customers to view the business as inefficient or unreliable. It increases overall risk exposure as it siphons away resources for risk identification and mitigation. It can also hamper business growth by lengthening the time needed to enter new markets or partner with other businesses. This can limit opportunities for expansion and innovation, ultimately impacting longer-term prospects.

A Key Connection: Better-Quality Data, Less Manual Effort

To make a real dent in improving KYC/AML due diligence efficiency, you need to start with a foundation of high-quality data on the entities you’re doing business with. Inaccurate, stale data translates to more manual effort required to screen, onboard, and monitor these entities — more time required for identity verification and risk assessment as well as a higher likelihood of errors requiring additional manual intervention. Bad data also means that compliance workflow automation solutions won’t give you the right results — keep in mind, “garbage in, garbage out.”

Here are some ways that more accurate compliance data can help reduce the time spent on manual tasks during the KYC process:

  • Enhanced identity verification: Reliable and up-to-date data sources can help verify the identity of individuals more effectively. Access to the most recent identity documents, official records, and biometric data during screening can improve the completeness of customer information, leading to more precise risk assessments and a lower risk of errors requiring additional time to remediate.
  • Improved risk assessment: A robust compliance data ecosystem that includes relevant risk indicators and insights can enhance the accuracy of risk assessment during KYC (and KYB, or know-your-business) screening. This includes factors such as adverse media coverage, politically exposed persons (PEPs) lists, sanctions lists, watchlists, and information about high-risk industries or jurisdictions. Access to quality data sources helps organizations make faster and more informed decisions about the level of risk associated with a customer.
  • Adoption of compliance workflow automation technology: Better compliance data enables the use of automation solutions, including those that leverage artificial intelligence (AI) and machine learning algorithms, to identify patterns, anomalies, and potential risks more effectively. These technologies also turn the manual, lengthy process of uncovering risk factors into a modern, streamlined and proactive method of ongoing risk mitigation.
  • Data sharing and collaboration: Improved data sharing and collaboration among industry participants can enhance the effectiveness of KYC processes. When organizations have access to shared compliance data repositories or participate in industry-wide information sharing initiatives, they can benefit from a more comprehensive view of customer activities and risks. This collaborative approach helps reduce redundant checks and lowers the risk of errors caused by fragmented or incomplete information.

The Benefits of Continuous Risk Monitoring for Compliance

The conventional KYC/KYB process, with static data gathered largely through manual effort, is like taking a snapshot of a business entity at a specific point in time. Shortly after the assessment is completed, the data used to create this snapshot becomes outdated. Material changes to the status of that entity may not be detected for weeks, or months, or however long the time interval until a new assessment is required.

Inaccurate data translates to more manual effort required to screen, onboard, and monitor entities, as well as a higher likelihood of errors requiring additional manual intervention.
 

By adopting continuous risk monitoring, compliance departments can not only eliminate a significant generator of manual labor; they create the potential for near real-time analysis and faster, more accurate risk assessments. This in turn provides the ability to react and pivot quickly, catching issues — for example, a change in beneficial ownership that could create a problem for your business — before they adversely impact your reputation, continuity, or profitability. This doesn’t just help improve operational efficiency; it also enhances the overall effectiveness of compliance defensibility.

 

To keep pace with an increasingly complex regulatory landscape, businesses should prioritize responsible data management and invest in technologies that facilitate reliable KYC/AML compliance screening. By doing so, organizations can better protect themselves from financial and reputational risks while also fostering better business relationships on a foundation of mutual trust.


A recent report from Chartis Research on KYC/AML data solutions can help you learn more about the vendor landscape for providers of these solutions. The report includes Chartis’s assessment of Dun & Bradstreet as a category leader with the capability to help compliance teams implement continuous data monitoring for both KYC and KYB processes.

The information provided in articles are suggestions only and based on best practices. Dun & Bradstreet is not liable for the outcome or results of specific programs or tactics. Please contact an attorney or financial/tax professional if you are in need of legal or financial/tax advice.

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