Fenergo report highlights US investment banks’ struggle in fighting financial crime amid limited resources

Fenergo's 2023 KYC Banking Trends Report has unveiled a concerning reality for US investment banks grappling with financial crime mitigation and regulatory compliance while encountering budget and workforce constraints.

Fenergo‘s 2023 KYC Banking Trends Report has unveiled a concerning reality for US investment banks grappling with financial crime mitigation and regulatory compliance, as they encounter budget and workforce constraints.

Surveying top-level operations, risk, compliance, and information executives across the US, the report pinpoints critical challenges. Notably, 51% of respondents lost clients due to sluggish onboarding processes, emphasising operational risk as their foremost concern amid adverse economic conditions.

The report signifies a significant improvement in KYC review execution time, plummeting from 117 to 82 days per client. While automation contributed to time and cost savings, investment banks face a staggering reduction in staff (-12%) and limited budget allocations.

Stella Clarke, Chief Strategy and Marketing Officer at Fenergo, highlighted the industry’s resource constraints, stating, “According to our data there are fewer available resources within risk and compliance departments, for reasons such as lay-offs, outsourcing and talent retention and the ask of these smaller functions remains to stay vigilant against financial crime and sanction violations in the face of heightened regulatory scrutiny.

“Therefore to compensate for people challenges, investment banks that continue to digitally transform AML/KYC compliance, transaction monitoring, and onboarding procedures will shorten their time to revenue and optimise client experience to secure relationships with their clients,” she continued.

In the report, Rory Doyle, Head of Financial Crime Policy at Fenergo, also addressed the challenges faced by investment banks, citing regulatory changes by bodies like FinCen and adaptations to reforms outlined in the Anti-Money Laundering Act of 2020, exacerbating the complexities.

But the issue is even more widespread, as Doyle explained, “Investment banks made good progress addressing sudden challenges in 2022, such as dealing with sanctioned persons relating to Russia’s war in Ukraine and automating KYC processes. They are now in a tough spot, moving priorities toward mitigating operational risk while simultaneously trying to stop financial crimes and the loss of clients from problematic customer experiences in onboarding. There have been numerous banking layoffs in the US recently which may contribute to the decline we’re seeing in staff now numbers.”

Legacy architecture (44%) and revenue growth targets (39%) also stand out as primary challenges for tech investment among banks, hampering compliance and risk officers’ efforts, according to the report.

Transaction monitoring systems, which often producing high false positive rates, emerged as a persistent hurdle.

Fenergo’s global insights accentuate a global reduction in KYC taskforce numbers, a 14% decrease since 2022. The average cost for a single KYC review has surged by 17% to $2,598, reflecting the increasing strain on resources.

The report, conducted through Censuswide, surveyed 1,164 executives across global investment banks. Fenergo’s comprehensive Client Lifecycle Management (CLM) solutions aim to digitally transform client journeys, orchestrating regulatory compliance and monitoring throughout the client lifecycle.

Read the full report from Fenergo here.

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