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ARTICLE
KYC Orchestration - The New Tool for Ensuring Compliance
In the UK alone, 1.28 million people switched their bank account provider in 2023, showcasing the importance of innovation and a good customer experience. And a key factor here is having a modern, efficient KYC system.
KYC orchestration is one of the first things banks looking to digitise their processes should consider as it can greatly enhance the customer experience and give banks a competitive edge. This is because the KYC process is both very complex as well as essential for staying compliant with Anti-Money Laundering, Combating the Financing of Terrorism and similar regulations.
In this article, we are going to examine how process orchestration software can strengthen a bank’s KYC process, why this is beneficial for most banks, and common challenges that banks may face during this process.
How process orchestration benefits KYC
Orchestrating your KYC process comes with a few very notable advantages, all stemming from the fact that KYC is inherently complicated. Namely, in order to remain compliant with all relevant regulations, a bank’s KYC system must perform a myriad of different checks repeatedly while also utilising different data sources.
Furthermore, there’s the question of customer experience. For example, a smaller bank with a limited number of clients can technically perform KYC manually but such a process would likely be very slow and pale in comparison to more digitally-oriented banks.
Lastly, the margin of error is very slim. At best, failing to implement a robust KYC system can result in some customer frustration and reputational damage. At worst, the bank in question may have to face severe fines.
But let’s now look at all these points in greater detail.
Orchestrating different KYC processes
As part of the KYC process, banks and other financial institutions will need to identify the client, verify their identity, and perform a series of background checks in order to assess their level of risk. This means that in order to keep things moving, the bank must process a lot of information at once.
The aforementioned background checks can be especially taxing, as they typically include PEP checks, sanctions screening, adverse media screening and seeing whether the person is a known criminal or a person of interest. And each one of these checks will typically involve multiple data sources, across different jurisdictions and perhaps even in different formats.
The entire process can be made slightly easier by utilising dedicated KYC databases so that only one data source is used. However, that comes with potential downsides, which we will discuss in a moment.
But a surefire way to keep customer frustration to a minimum and streamline the entire process is via KYC orchestration. With it all the different processes can run simultaneously, automatically prompting additional steps according to the bank’s risk model.
Orchestrating different KYC vendors
Most banks and financial institutions, especially those that handle a larger number of customers, will typically utilise more than one KYC vendor. This can relate to vendors that offer different KYC databases or even additional functionality, such as e-signature vendors.
In either case, having more than one KYC vendor provides a significantly higher level of security. This is because the bank no longer has just one point of failure and their KYC process as a whole becomes more robust due to having access to more data.
For example, one vendor might have better coverage for the UK while another focuses more on Switzerland. So, a bank that operates in both these jurisdictions can benefit greatly from using both vendors.
However, utilising multiple KYC vendors can also lead to complications due to differences in how the data is formatted and structured, as well as how the vendor’s API interacts with the rest of your tech stack.
Therefore, KYC orchestration in this context is used to ensure that the different vendors don’t “get in the way” of one another and that they can all be utilised to their full potential. Furthermore, if any one vendor does run into issues, orchestration software can ensure that the end-user is never affected by this.
Performing perpetual KYC
While KYC most commonly refers to only the steps taken during customer onboarding, Customer Due Diligence requires additional measures throughout the customer lifecycle. Namely, when customer information or their risk profile changes.
This is commonly referred to as perpetual KYC and it’s as essential to compliance as customer onboarding. However, perpetual KYC requires many of the same steps as the onboarding process with the added complexity of not being initiated by the customer in most cases.
Therefore, an easy way to streamline this entire process is by utilising Customer Lifecycle Management software along with clever automations and your established KYC framework. And to ensure that these systems are working together properly, KYC orchestration software is an invaluable tool.
As an example, when Atfinity automated periodic and ad-hoc KYC for Bitcoin Suisse, their entire workflow became more streamlined thus strengthening their KYC framework.
Staying compliant with AML/CFT regulations
As mentioned, the KYC process has a very small margin of error. Therefore, ensuring that you’re applying a risk based approach from onboarding and throughout a client’s lifecycle is essential.
And KYC orchestration helps in this department in a few key ways. Firstly, to reiterate what we’ve stated already, KYC orchestration allows you to properly utilise different KYC vendors and stay on top of important deadlines. This already makes your entire KYC framework more robust and less likely to “slip up”.
However, KYC orchestration also helps banks keep up with changes in regulations. Namely, by having a unified, end-to-end overview of your KYC framework, you can more easily make adjustments when changes in relevant regulations do occur.
Compared to a manual, hard-coded system, this is a major benefit as it will take fewer resources to stay up to date and you’ll be less likely to face new technical issues after implementing changes.
Offering a better user experience
The most obvious way in which KYC orchestration can better your overall banking processes is by making the user experience a lot better. For example, by utilising clever automations in tandem with KYC orchestration software, both the onboarding and subsequent monitoring of a client can be seamless and non-intrusive.
For example, by running all the different KYC checks at the same time, the client onboarding process is going to be a lot quicker and thus less frustrating. Additionally, by efficiently keeping up to date with your clients, you can more easily assure that all of the needed information is gathered and avoid creating unnecessary customer loops.
Lastly, if KYC orchestration is just part of a wider plan to digitise your entire banking process, customers can enjoy new, convenient functionalities such as mobile banking and self-serving portals.
Which banks have the most to gain from KYC orchestration?
The simplest answer is: those who need to perform KYC checks frequently. For example, a retail bank that onboards hundreds of customers every day or even a wealth manager that deals with high-risk customers.
However, there are also more fringe cases. For example, a trust company that operates in multiple different jurisdictions will benefit from streamlining different vendors and databases tailored to the separate jurisdictions.
And even newly-founded banks can benefit from orchestration software as it will help them create a strong foundation upon which to build the rest of their processes. In this context, new neobanks will especially need an orchestration tool as it can be the foundation for their entire tech stack.
Lastly, the financial institutions that will see the biggest benefit are those that are still solely relying on manual processes and outdated systems. This is because fully digitising their entire workflow will severely lower processing time and even costs, getting rid of many bottlenecks in the process.
Common challenges banks may face when implementing KYC orchestration
From a technical standpoint, the main challenge banks can face is properly integrating all of the different vendors/services they use. But this isn’t something unique to KYC orchestration but a general downside presented by outdated, hard-coded systems.
With that being said, even older systems can be brought up to modern standards and take advantage of KYC orchestration. In fact, KYC orchestration makes for the perfect baseline when doing exactly that, as it can ensure that your new architecture is stable and streamlined.
From a business perspective, banks may be hesitant to incorporate more software into their tech stack due to added operating costs and third-party risk. However, it’s important to keep in mind that functionality finances itself. In other words, by cutting down on processing time and making mistakes more infrequent, you’re likely to save a lot more money than the licensing fee for the orchestration software.
Lastly, banks may struggle to find a good KYC orchestration provider. Book a demo call with Atfinity to experience how our tailored solutions can streamline your KYC process, enhance compliance, and elevate customer satisfaction. Discover why leading institutions trust us to deliver the best results.
Conclusion
In conclusion, KYC orchestration is an invaluable tool for many banks and other financial institutions as it allows them to streamline key processes and vendors, stay compliant with AML/CFT regulations, and offer an overall better user experience.
Therefore, while some challenges might be present upon first implementation, it will pay dividends for many.
Book your demo today and see why leading financial institutions
worldwide trust Atfinity to drive their digital transformation.
Book your demo today and see why leading financial institutions worldwide trust Atfinity to drive their digital transformation.