Money laundering makes up around 5% of the global GDP, equating 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. Lawmakers want to prevent transactions taking place with dirty money. One way to do this is with fast and accurate identity verification processes. 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 factor is that as the world becomes more global and connected. This is causing more cross-border transactions. Another is that government entities are taking measures to create rules for FIs to follow on the prevention of financial terrorism.
FIs are responding to these issues by investing in strengthening their KYC and AML processes and plan to increase investments in these processes each year. It is estimated that many multi-national banks spend over 400 million USD on their 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 procedures and programs, they are not very effective. Here are some of the challenges that FIs are currently facing:
- In the last five years, the increase in compliance staff has made them more 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 toward compliance.
- FIs are overwhelmed with 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 compliance teams to work efficiently and effectively.
- Know your customer and anti-money laundering procedures are so inefficient that they are affecting potential customers. Customers are dealing with long on boarding times. Globally it is around 26 days and is expected to keep rising. Onboarding issues are leading to poor customer relationships and decreasing their profitability.
A streamlined system needs to be developed for FIs looking to maintain proper compliance. Streamlining will decrease the monies spent on these programs and increase their effectiveness. Incorporating automated tools is one-way FIs can bring their programs into the 21st century. FI may face challenges in creating initiatives to clean up the back end of Know Your Customer and Anti-Money Laundering processes.
IDMERIT can help streamline the compliance process. Accurate identity verification matches with high coverage rates translate to an efficient system that decreases man-hours of investigation. IDMERIT’s API can connect disparate global systems to achieve KYC/AML objectives.