The country strengthens its fight against financial crime with a “historic” act which makes it mandatory for companies to prove the identity of the individuals behind the most mysterious companies
he digitization of traditional banking and the rise of Fintechs has led to a more demanding user profile, a user who understands they can complete a process with their bank from any device and at any time and obtain the results in real time. In order for all the gear to adapt to the new needs, companies are implementing a multitude of identification and ID verification solutions, through the quick scanning of a photo or a receipt, for example. On one hand, these solutions make life easier for customers, but on the other require a greater effort from companies to comply with all the anti-fraud regulations and in consequence, manage the large number of new contracts.
Risk assessment, loan granting and opening accounts are all processes that can be automated, although the back-office still requires a lot of manual work and as a result, banks have had to increase their staff. Offices are being emptied, but we continue using external centers. Let’s remember that we are in the midst of an economic recovery; banks are adapting to the new challenges at a rapid pace, trying to offer the same services as before and a customer experience as seamless as possible. The challenge of adapting companies to remote working in record time has tested the imagination of banks, who have to reorganize what services they offer and how, restructure their offices, think of new spaces, etc.
The review of documents and databases absorbs an enormous amount of resources. Compliance regulations are constantly being updated, forcing banks, already under severe guidelines, to provide lots of time and money in order to comply with all the requirements. It is estimated that, since the economic crisis of 2008, the cost of compliance for banks has increased by 60%1, with approximately 1 of every 10 bank employees working on it, along with an investment of up to 10% of their revenues2. Large corporations still harbor fears that automation will undermine the quality of work.
The intense scrutiny by regulators on the quality of CDD (Customer Due Diligence) reports, essential to establish any business relationship, results in banks and Fintechs hiring large teams focused on these tasks. These teams assess risks and produce reports and many of the verifications they carry out, are still done manually. The costs of these manual checks can be as much as 70% of the compliance budget for traditional banks and up to 90% for Fintechs. Although institutions use third parties for all these steps, sometimes they need a provider for each process (watch list checks, ID&V, etc.), which increases the expense significantly.
The financial sector must consider however, that devoting efforts to monitoring procedures such as the implementation of KYC (Know Your Customer) and AML (Anti-Money Laundering), is an opportunity to reinforce its reputation and gain awareness of its corporate responsibility.
Using an external provider to handle all parts of the process is a worthy option to improve efficiency, not only for onboarding, but in the entire customer relationship with the company. A comprehensive and continuous KYC process, in which every point of interaction is verified, will bring value to the user, preventing cases of money mules (people used as intermediaries for money laundering) or phishing. Let’s not forget that phishing cases increased by 42% in 20203, comparing the data with those of the previous year. In terms of money laundering, it is estimated that between 2% and 5% of the global economy is “laundered” every year, i.e. between 740,000 and 2 trillion euros. In Europe alone, these figures amount to almost 200 billion euros. Undoubtedly, the huge increase in digital transactions associated with the “new normal” and remote working, are determining factors in making these numbers stratospheric.
1 Regulatory productivity | Dilip Krishna. Deloitte
2 Rising compliance costs are hurting customers, banks say | Laura Alix. Bloomberg. 12/04/2017
3 A holistic approach to fighting financial crime | James Mirfin. Refinitiv. 10/09/2021