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Finance

5 Steps to Implementing Managed Services for AML and KYC Functions

Financial service providers are experiencing increased scrutiny demand, encouraging institutions to rapidly evolve their AML (Anti-Money Laundering) and KYC (Know Your Customer) functions. While many firms struggle to expand their functions accordingly and address issues related to new approaches, many find it challenging to implement managed KYC services for AML and KYC operations. This presentation covers five critical steps to make it happen.

  • Opt for a Risk-Driven Design: An institution must focus on customer-risk assessments while developing policies and designing processes. Such a perspective helps achieve a more holistic, precise, almost immediate view of the customer’s risk. Increased focus on innovation and risk effectiveness improves a bank’s risk mitigation and coverage. Automating manual processes will reduce manual errors and address opportunities as and when they happen.
  • Digitize Customer Experience: Digitizing the customer’s journey through self-service customer portals and apps tailored to their requirements makes the processes easier and faster for all the parties involved. The institution may consider hiring an in-house customer service team or outsourcing to professionals to support the portal.
  • Apply Risk Analytics: The institution needs a disciplined data management practice that can leverage dynamic and automatic data feeds sourced from internal and external bodies. KYC services can use that data to perform advanced risk analytics to gain a competitive advantage and implement managed services for AML and KYC functions.
  • Automate Policy and Processes: Automating workflows, case management, and policy development improves an institution’s speed and capacity to a great extent. As a result, the in-house team can stay focused on value-adding activities rather than spending time on monotonous manual functions.
  • Build a Center of Excellence: A center of excellence must be in place to manage performance, use balanced scorecards, and account for customer experience through each step. Establishing a specialized KYC program that optimizes location and strategizes resourcing is crucial. Data-quality problems, like incomplete or duplicate data, account for a significant percentage of operational costs that this center of excellence can address with expertise.

Banks and financial institutions must master all these five steps to implement managed KYC services for AML and KYC operations. Relying on technology is insufficient, as they require a holistic set of capabilities for each of these five steps. Implementing managed services must include the following:

  • Ascertaining location and identity of potential customers and understanding their business activities
  • Verifying or authenticating potential customers, classifying their risk type, and defining the customer type before storing their information
  • Conducting regular assessments for due diligence on existing customers, including data related to their location, occupation, transaction type, activity pattern, and payment method
  • Keeping records of customers for regular auditing
  • Monitoring risk factors like activity spikes, unusual cross-border activities, adverse media references, etc.
  • Identifying UBOs (Ultimate Beneficial Owners)
  • Incorporating e-KYC processes to boost speed, accuracy, adaptability, and customer experience

Implementing managed KYC services for AML and KYC operations is crucial to gaining customers and retaining them. Although banks often struggle to achieve this purpose, the five steps mentioned here pressure them to redesign their KYC system and devise an efficient solution to gain an edge over the competition.

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