The need for shared KYC and onboarding automation tools in an exhausted European financial market

Over the past decade the territories that adopted modern technological banking and financial services have experienced significant growth. At the same time, they have been able to adhere to ever more stringent regulatory requirements related to Anti-Money Laundering (AML) and Know Your Customer (KYC) compliance.

An example of this is the UAE which has paved the way in digital KYC and secure data sharing via the creation of a unified KYC ecosystem. Other markets in Southeast Asia, Southern Europe and Latin American have also made headways in exploring and implementing digitized and shared KYC networks, resulting in improved access to credit and customer service, as well as better governance and compliance.

The cost of compliance

It is a well-known fact that applying technological solutions for KYC data sharing leads to better functioning of and improved data quality within the banking and financial services sectors. This is because costly and time consuming compliance processes are made more efficient. Additionally, the possibility of financial institutions to monetize on the KYC and compliance checks carried out on their customer base in a shared ecosystem offers the opportunity to turn what was a previous cost centre into a revenue generator.

In the current set up around KYC, heavy reliance on manual processes, inadequate or poor data quality, and the need for manual data checks adds to the overall cost of compliance. The top three challenges related to robust compliance have been identified as siloed information, multiple versions of KYC data relating to one and the same customer, and growing pressure from customers to provide smoother and more automated onboarding journeys.

The total projected cost of compliance across all financial institutions globally reached $213.9 billion in 2021, surpassing the $180.9 billion recorded in 2020.

The tightening regulatory landscape

Onboarding practices in the financial services sector are heavily fragmented and vary from country to country, adding to the complexity and effort required to ensure compliance, particularly when operating across multiple jurisdictions. Unfortunately, progress towards developing harmonized KYC processes across markets is slow.

Doing so would clearly benefit not only financial institutions and customers, but also serve to attract more businesses, as has been the case with the UAE.

In most geographies, regulatory obligations continue to become more rigorous while the responsibility to adopt and enforce robust and efficient AML and compliance processes remains with the banks. As all financial institutions are painfully aware, keeping on top of ever changing regulations and ensuring that they are adhered to is incredibly costly, complicated and labour intensive.

In the EU, some efforts to align practices between countries have taken place, for example the European Regulatory Framework has made progress in clearly defining money laundering offences as well as initial attempts in unifying KYC data collection requirements.

While such efforts certainly are a step in the right direction, there is much more that could be done to internationally coordinate KYC requirements between different jurisdictions. For the time being, the best way for financial institutions to ensure compliance is to rely on technology that is responsive and can be adapted to the regulatory requirements inherent to each market they are present in.

Harmonizing KYC will benefit markets

Adopting a more unified approach to KYC in Europe would bring clear benefits to the market as a whole: easier and faster onboardings, ability to introduce elements of automation, reduction in human errors, higher quality of data, cost reductions across the board. This would result in better functioning markets, more profitable institutions and happier customers.

In the race to attract business and talent, the markets with the most advanced yet secure digital infrastructures in place will be the ones that thrive. It is evident that this is top of mind in the geographies across the world who have invested in technologies that solve problems related to regulatory compliance and enable businesses, individuals and other market participants to prosper. European countries, have an opportunity to come together to create such an environment and the sooner significant steps towards this are taken, the better it will be for all market participants.

A single version of truth will significantly improve customer experience, attract more business for European banks, while also facilitating compliance, reducing risks and potential fines for all parties involved.

Vassia Pikrou

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