In the rapidly evolving landscape of financial services, Know Your Customer (KYC) programs are critical for combating financial crime and ensuring regulatory compliance. During our recent webinar, “Future-Proofing Your KYC: Adapt or Fall Behind,” experts Becki LaPorte of Datos Insights and Steve Marshall of FinScan delved into the complexities of modern KYC practices and highlighted the need for organizations to adapt their KYC strategies in response to increasingly sophisticated threats.
Although the industry is moving towards integrating more technology into KYC programs, significant strides are still needed. The adoption of automation and advanced data integration is crucial for enhancing the effectiveness of KYC processes. Here are the key takeaways from the session.
Traditional, perpetual, and intelligent KYC: understanding the evolution
Historically, KYC was a reactive process, focused on periodic checks and compliance-driven data collection, such as verifying names, addresses, and government IDs. This approach often fails to capture the ongoing risk associated with customer behavior and external changes.
A step up from traditional KYC, perpetual KYC aims to continuously monitor and update customer information in real time. This model helps institutions stay ahead of potential risks but requires substantial technological support and resources to implement effectively. Becki LaPorte noted that despite growing interest, many organizations struggle with the resource demands of perpetual KYC, often due to siloed data and unclear program ownership.
Intelligent KYC is an advanced model using AI, machine learning, and other sophisticated technologies to provide a holistic view of customer risk. It allows institutions to assess customer behavior dynamically, filter out noise, and focus on high-risk activities. The integration of technology in intelligent KYC helps reduce manual intervention, enhance data analysis, and streamline risk profiling, making it a critical evolution in the KYC journey.
Who owns the KYC program? breaking down silos
A recurring theme in the discussion was the question of ownership: who should be responsible for the KYC program within an organization? Traditionally, KYC has been seen as a compliance or AML function. However, as the importance of KYC grows, there is a push for broader organizational involvement, including business units that have direct customer interactions.
Steve Marshall stressed the need to place KYC ownership closer to where risks originate. This requires a cultural shift where KYC is viewed as a business-enabling function, not just a compliance burden. Cross-departmental collaboration is essential for capturing a full picture of customer risk and integrating KYC more deeply into daily operations.
Challenges in data management and defining risk profiles
Data is at the heart of any successful KYC program. However, managing this data effectively remains a significant challenge for many organizations. Traditional KYC methods often rely on static, incomplete data that fails to capture the full scope of a customer’s activities and risks. Key challenges include:
Data silos: Data is often stored in separate systems across various departments, making it difficult to create a unified view of the customer.
Data quality: Poor data quality can lead to misidentification of risks, which can result in compliance failures or missed opportunities to mitigate potential threats.
Complex risk profiles: Modern risk profiles go beyond simple geographic or demographic data to encompass a network view of customer relationships, behaviors, and transactions. This requires advanced analytics and technology to interpret risk accurately.
LaPorte and Marshall highlighted the importance of comprehensive data management strategies, including validation, verification, and enrichment processes. Building a 360-degree view of the customer including internal and external data sources is critical for accurate risk assessment.
Leveraging technology to advance KYC capabilities
Technology plays a pivotal role in enhancing KYC processes. Another webinar poll revealed that 70% of organizations are considering AML compliance platforms, 51% are focused on data management solutions, and 30% are exploring AI to improve their KYC operations. Respondents are primarily focusing on three main technologies:
AML compliance platforms to streamline workflows and improve efficiency, helping institutions manage the increasing volume and complexity of customer data.
AI and machine learning offering promising capabilities in predictive risk assessment, anomaly detection, and the automation of routine tasks, allowing compliance teams to focus on higher-value activities.
Data enrichment tools bringing together disparate data sources to provide a more complete view of customer risk, integrating information like geographic and demographic data, transaction monitoring, and watchlist screening.
Marshall cautioned that while AI and other technologies hold great potential, organizations must ensure the transparency and explainability of AI models. Data quality is crucial; AI is only as good as the data it’s trained on, making data governance a critical component of any KYC technology strategy.
Overcoming resistance and securing funding for KYC enhancements
One of the biggest hurdles to advancing KYC programs is securing the necessary funding. Often, organizations only commit resources after facing regulatory pressure or compliance failures. However, proactive investment in KYC can prevent costly fines and reputational damage. Several strategies emerged in the discussion to secure funding including:
Educating stakeholders on the broader business benefits of advanced KYC, such as improved customer experience, operational efficiency, and enhanced risk management.
Engaging internal audit teams to help identify program gaps and build a compelling case for funding before regulators do.
Demonstrating the cost avoidance of investing in technology and perpetual KYC by reducing the long-term costs associated with manual processes, compliance failures, and financial crime.
LaPorte emphasized that KYC should not be seen merely as a compliance exercise but as a strategic enabler that supports business growth and customer retention. Engaging with various stakeholders early in the process can help align KYC improvements with broader organizational goals.
Building a roadmap for future-proofing KYC
As financial crimes become more sophisticated, the KYC landscape will continue to evolve. Organizations must be prepared to adapt their KYC strategies continuously, integrating new technologies and data sources as they become available. Marshall and LaPorte suggested that organizations take three main next steps:
Developing a clear roadmap by identifying the key areas where KYC processes need improvement, setting clear goals, and outlining the steps necessary to achieve them.
Investing in training and resources by equipping teams with the skills and knowledge needed to operate advanced KYC systems and interpret complex data sets.
Foster a culture of collaboration across departments to ensure that KYC is seen as a shared responsibility that contributes to the organization’s success.
Marshall highlighted that KYC professionals should work closely with business units to ensure compliance efforts are aligned with broader business objectives. This partnership approach helps organizations navigate the complexities of modern KYC while supporting strategic goals.
Evolving your KYC strategy – a business imperative for long-term success
Future-proofing your KYC program is not just about meeting regulatory requirements—it’s about creating a robust, dynamic approach to customer risk management that supports the overall business strategy. By embracing advanced technologies, fostering cross-departmental collaboration, and continuously refining risk profiles, organizations can better protect themselves from financial crime and position themselves for long-term success in an increasingly complex regulatory landscape.
To listen to the full discussion, check out our on-demand webinar, “Future-Proofing Your KYC: Adapt or Fall Behind.”