Fraud prevention & security
and law enforcement, those chances are becoming greater. It’s a slow process, with many banks reluctant to embrace the digital age. Traditional KYC processes, after all, are not particularly efficient or effective. Important questions are often not asked. Information, if it was stored at all, has typically been scattered across various disconnected platforms. And when new IT systems are introduced, they’re often stapled onto old ones. Connecting them is a challenge, and there certainly isn’t one complete picture of each client stored anywhere. Yet, even if this was how things have been done for years, it’s no longer viable. For one thing, anti- money laundering (AML) legislation is becoming stricter, with new EU measures approved by MEPs this year requiring financial institutions to verify their customers’ identity, what they own and who controls the company. Even before that, some senior managers and board members were being prosecuted and fined for breaking the rules. Banks, for their part, are realising that it is no longer sustainable to plough money into larger and larger KYC workforces, especially when technology can do part of that job much more effectively. As Loonen says: “The current modus operandi doesn’t work. Banks have no choice but to change.”
Investing in integration
For the past few years, we have seen banks investing huge amounts of money and time into new integrated KYC systems, which can communicate with the other IT systems at the institution. “Traditional processes were very time consuming, lots of errors were made and it also wasn’t very client friendly,” Loonen explains. “With new systems, they can very easily extract and send data in a proper way and make multi-related inventories about clients.”
UK building society Nationwide, for example, has partnered with identity verification (IDV) platform Jumio to bolster its online account opening processes. Leveraging AI, biometrics, machine learning and automation, the platform’s API provides end-to-end identity proofing, KYC and AM solutions. As a result of this integration, Nationwide claims that their KYC processes have become more streamlined and efficient, and the time to open an account has been dramatically reduced. Meanwhile, as part of its digital transformation, Santander has engaged Encompass, a firm that helps global banks and financial institutions fight financial crime and streamline their KYC processes to comply with AML requirements, providing a more efficient way of onboarding clients. Having one platform with all of the information gathered during the corporate discovery stage – and throughout further Customer Due Diligence (CDD) investigations, which are
Future Banking /
www.nsbanking.com
carried out to ensure compliance with AML and counter-terrorism regulations – has allowed the bank to make decisions much faster.
Centralising data
More than that, though, a growing number of large banks are working together on pilot projects to share their information in a central database. The idea is ultimately to enhance AML efforts collectively. In the Netherlands, for instance, a network of five banks shared CDD data for KYC checks during a 2019 pilot. Today, the resulting Transactie Monitoring Nederland (TMNL) network is focused primarily on transaction monitoring. Banks send anonymised transaction data to TMNL, which uses the information to identify meaningful connections between them, providing new insights into potential money laundering activities. In the UK, meanwhile, Mastercard’s payment technology arm, Vocalink, has formed a partnership with UK retail interbank payment systems operator
Pay.UK to build the Mule Insights Tactical Solution (MITS). Six Nordic banks – among them Danske Bank and Nordea – have collaborated to launch Invidem, a platform that collects and verifies KYC information for corporate customers. Through Invidem, the founding banks have developed a common standard for KYC information, made available through its KYC services and platform, to ensure compliance with financial crime prevention requirements.
Loonen is also seeing banks developing their KYC departments to make room for more so-called ‘financial detectives’. “These are people who are highly qualified and are specialists in making a full inquiry and detailed research into clients,” he explains. “They can really look at what type of client this is, what his background is and advise what to do with this client or prospect.” At the same time, Loonen has noticed more openness among banking executives to working with public bodies and law enforcement. One such example is the Financial Intelligence Unit in the Netherlands, which is the central reporting point for banking entities to report unusual transactions. “Banks are more and more willing to share data with authorities but also with other banks, in order to make sure that the chances of getting hold of criminals are as high as possible,” he says. “Of course, this is also because in the Netherlands, the Public Attorney has been tough, and we have seen board members at several banks being investigated and potentially personally prosecuted for neglecting to follow AML laws.”
Challenges ahead
Progress, in short, is happening apace – but Loonen is emphatic that there are still many challenges to overcome. In the Netherlands, for example, there are still significant concerns about data privacy within the TMNL network. “While the Dutch Central Bank
Tom Loonen, professor of financial law and integrity, Vrije Universiteit Amsterdam.
$5.8bn
The amount the global AML market size is expected to grow to by 2027, up from $2.8bn in 2022, enjoying CAGR of 15.9%.
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