Money laundering around the world makes up about 5% of the global GDP, amounting to around 2 trillion USD. The amount of money being transferred in these transactions has drawn the attention of governments and policymakers across the globe who want to prevent transactions taking place with dirty money. This has put a large strain on financial institutions (FIs), as they try to keep their Know Your Customer (KYC) and anti-money laundering (AML) policies up to date to prevent these fraudulent transactions.
Several factors have made it more difficult for FIs to combat financial crimes. One of these factors is that as the world becomes more global and connected, more cross-border transactions are taking place within it. Another is that government entities are taking measures to create rules for FIs to follow concerning the prevention of financial terrorism.
FIs are responding to these issues by massively investing in strengthening their KYC and AML processes. Furthermore, they are increasing investments in these processes each year. It is estimated that many multi-national banks spend over 400 million USD on their KYC and AML programs. To many FIs, investing in this way is more effective than being slapped with fines for non-compliance, which can be expensive and negatively affect their reputation.
What is worrisome is that even though FIs are investing heavily in KYC and AML procedures and programs, they are not very effective. Here are some of the challenges that FIs are currently facing:
- In the last five years, compliance staff has increased significantly, making them expensive. For example, individual investigators are being hired to manually review high-risk transactions and accounts. This process is slow and error-prone, which makes it difficult for FIs to find profitability in their investments toward KYC and AML compliance.
- FIs are riddled with KYC and AML systems that are extremely inefficient. For example, many banks use manual labor to make thousands of customer calls every month to bring their KYC documents up to date. Plus, many FIs lack a central data pool for their data, instead of keeping their data in numerous disparate systems. These issues, along with many others, make it difficult for people working in AML and KYC teams to use these systems in a way that effectively maintains compliance.
- KYC and AML procedures are so inefficient that they are affecting potential customers. Customers are increasingly dealing with long onboarding times for large FIs. The average onboarding time globally is around 26 days and is expected to keep rising. These issues in onboarding are leading to poor customer relationships and decreasing their profitability.
It is clear that a streamlined system needs to be developed for FIs looking to maintain proper KYC and AML compliance. Doing so will decrease their spending on these programs and increase their effectiveness. Incorporating automated tools is one-way FIs can bring their programs into the 21st century. In order to do this though FIs face their challenges and create initiatives meant to clean up the backend of their KYC and AML processes.
IDMERIT can help streamline the KYC process. Accurate matches with high coverage rates translate to an efficient system that decreases man-hours of investigation. Since IDMERIT performs over an API, even disparate global systems aren’t challenged to achieve KYC objectives.