Striking a balance between compliance and customer experience during client onboarding

The onboarding process requires financial institutions to comply with increasing global and regionally specific regulations while also delivering an enhanced customer experience. As a result, they must embrace modern technologies to streamline the KYC process and stay competitive.

When it comes to onboarding a customer, one size does not fit all. Customer identity authentication and due diligence can vary from jurisdiction to jurisdiction and from customer to customer, and are becoming increasingly costly, highly nuanced and time-consuming. As Muinmos commercial director Michael Thirer puts it, “FIs need to comply with a long set of rules and regulations and that can make the onboarding process complex and non-client-friendly.”

Customer onboarding requires compliance with different regulations and involves lengthy negotiations, stringent documentation, and complex products and services. On the other, it is constrained by the siloed infrastructure. “This leads a lot of FIs to corner-cutting, meaning, designing an onboarding process that is fast and easy on the client, but isn’t fully compliant. Other FIs don’t accept clients from certain jurisdictions, where regulation is especially complex or oversight is strict,” Thirer said.

Gaps in financial systems and financial institutions’ failure to take improvement measures, cause financial crimes. Inadequate processes are contributing to the huge amount of money laundering transactions, which are estimated at 5% of the global GDP. In addition to detecting money launderers, administrative accuracy during onboarding is crucial to ongoing AML and CDD compliance to help prevent firms from becoming complicit in and penalized for a money launderer’s criminal activities.

The cost for getting anything wrong in the onboarding process is rather high. According to research done by Thomson Reuters, 92% of firms estimated that current KYC onboarding processes cost roughly around $28.5m. To add, banks racked up roughly $200bn in fines from 2009 to mid-2016 due to money laundering, Bain and Company found.

To add on, while onboarding is crucial to AML/CFT regulation and enforcement, it is equally important from a customer service perspective. Customers expect the same convenience from a financial institution that they enjoy from other companies like Amazon and Facebook. They now hold financial institutions to equally high standards for premium digital experiences and real-time information, with an omnichannel presence. This results in pressure on FIs to provide a similar experience to the onboarded client, with the added pressure that FIs need also to ensure compliance is not neglected.

Despite that, in many FIs the onboarding process currently in place is anachronistic in today’s digital, real-time era, bogged down by technological and process issues. Traditional onboarding procedures typically can take around three weeks or longer while a customer is required to produce copies of numerous documents and undertake time-consuming processes.

Another challenge in onboarding centres around the extreme difficulty in identifying, collecting, and managing data on customers, whether it is structured or unstructured variety of data. Explaining the current client onboarding process, Thirer said that it often involves stakeholders from different parts of the organisation which are often not directly linked to the client onboarding platform itself. For instance, the client categorisation, the suitability and appropriateness assessments and other required regulatory assessments are often controlled by the legal or compliance department; the KYC/AML checks are usually performed by the onboarding teams, connecting to portals of various data providers; and the client risk assessments are prepared by risk officers, using their own risk management tools. This fragmented approach can negatively affect the customer acquisition process, resulting in unwanted delays and lengthy time-to-cash cycles, which eventually result in a considerable loss of revenue for the FI, Thirer added.

Regulatory challenges

The regulatory landscape around onboarding is ever-changing, and anti-money laundering is a dynamic area of compliance. New AML regulations have made the KYC process even more critical for financial institutions to protect their clients’ identities from exploitation and to reduce the risk of anti-money laundering violations. The errors and omissions that are part of the current intensive onboarding processes heighten regulatory risks, whether relating to the Foreign Account Tax Compliance Act (FATCA), the European Market Infrastructure Regulation (EMIR), the Markets in Financial Instruments Directive (MiFID II), global OTC derivative rules like Dodd-Frank, Canadian and APAC OTC derivatives or any of the other regulations affecting the industry.

More importantly, Thirer said, financial institutions need to have knowledge of the regulations not only in its own place of business, but also in their client’s domicile. “FIs should refrain from taking clients from jurisdictions their laws they don’t know well,” Thirer detailed. “For example, if the FI is EU based but the client is from the Bahamas, you cannot just ask questions derived only from MiFID II. The assessment, as well as other aspects of the onboarding process, need to also reflect the Bahamian law. As a result, every combination of FI place of business/client domicile, requires a different, specially tailored onboarding process – and that needs to be further tailored according to the client’s answers.”

With multi-billion-dollar fines being imposed against institutions that have run afoul of the regulations, market participants need to aggressively pursue technology-based onboarding solutions built on modernized platforms, Thirer said. Financial institutions must leverage big data and automation to improve the onboarding client experience, reduce cycle time and embed stronger operational controls.

It is indeed imperative to streamline onboarding processes to cater to various customer segments and ensure adequate infrastructure support in terms of capacity, costs and operational efficiencies. With the right technology and best practices, it’s easy to both satisfy the regulatory demands of the compliance officer and the convenience demands of the consumer — without compromising on either, Thirer added.

Apart from changing regulations, the ongoing Covid-19 crisis has catalysed the adoption of technology. “We got what I call ‘the pandemic push’. People during the pandemic traded online a lot more than they have before, and that really pushed FIs’ onboarding teams to the limit, making them realise that digitisation is the way to go,” Thirer said. “Sometimes it takes an event like a pandemic, or a fine, to make an FI change its infrastructure.”

Simplify the onboarding process with Muinmos

As AML regulations take a firm hold, there is indeed significant chance that technology can be the only tool which can help financial institutions meet the new protocols for both their account holders and themselves. Thirer said, “In order to create a truly holistic and efficient onboarding process, one needs to digitize the entire process, including those parts which are still non-digital, and connect all the different systems together, and work in a centralised manner, meaning, in one consolidated process.” Enter Muinmos.

Muinmos client onboarding platform is comprised of three modules which can be integrated as well as used separately. mPASS™ is an AI-powered engine which keeps up-to-date with changing regulation “and helps FIs answer the following question; ‘can we onboard client V, provide them with service X, sell them product Y, in country Z?,” Thirer said. mCHECK™ performs all KYC/AML checks in a fully automated manner through all data-sources. “All the FI has to do is configure, from within the system, which data providers it wants, at which cases, and the platform will take care of the rest,” he said. Finally,  mRX™ is the platform’s risk assessment tool.

Thirer said that the platform’s tools can onboard any type of client – retail, professional, institutional – within three minutes and does so without compromising compliance. “This means that FIs don’t need to choose anymore between onboarding more clients and being compliant – they can do both – and cut costs in the process,” he explained. “It’s important to choose the right data providers and use AI in a way that will help but not replace the FI’s judgement altogether, and in our platform, the final decision is reserved for the compliance officer.”

Companies that have implemented Muinmos’ solutions are seeing an increased conversion rate of leads into accounts and a significant reduction in time and workload to onboard new clients. They are also developing a reputation for being efficient, client-friendly and offering a better customer experience during the onboarding process. “It’s like giving a chainsaw to a logger. It’ll only help him perform his job better,” Thirer said.

Looking forward, automation might become increasingly mainstream with regulators applying the technology to detect fraud and audit FIs. Thirer concluded, “I predict we’ll see some technical standards issued in the coming years, clarifying the standard of automation required in the field, and perhaps some protocol that will allow regulators to test matters like client categorisation, suitability and appropriateness etc., in batches and across border.”

Muinmos was recently listed in the first annual AIFinTech100 list, which identifies the companies developing AI technologies in financial services that every financial institution needs to know about in 2021. Read the full report here.

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