On 4 November 2021, Know Your Customer’s CEO Claus Christensen took part in an insightful panel discussion on the topic of onboarding, KYC and AML digitisation through RegTech at the RegTech Summit APAC 2021. The discussion was moderated by Simon Young, Head of Compliance at DBS Bank and featured Lee Ashmore, Global Head of AML Technology at HSBC, and Eric Wan, Head of FCC Controls at Mox Bank as additional speakers.
RegTech adoption is a journey that can look very different depending on the perspective we observe it from.
As the sector continues to expand, RegTech applications to AML and KYC are becoming increasingly the norm. In this context, having an honest conversation between providers and banking executives about the future of the industry is a refreshing and useful exercise.
Following our participation at the RegTech Summit APAC 2021, we have selected a few reflections inspired by our discussion with banking executives.
1. We are just getting started with RegTech.
The last few years have seen an unprecedented uptake in RegTech adoption, especially around the area of client onboarding, KYC and AML automation. As an example, according to the RegTech Adoption Index paper recently published by the Hong Kong Monetary Authority, most banks are using at least some form of RegTech in their operations and are positive about the potential benefits of RegTech.
Yet, this is just the beginning. For instance, huge differences remain between the rate of digitisation of the onboarding process for individual customers compared to corporate and SME customers. The onboarding of corporates and SMEs often remains extremely inefficient and manual, with digitisation efforts staying only on the surface. While the customer information and documents may be exchanged and stored digitally, the level of automation is still very limited. Because of the complexities and multiple steps of the corporate onbaording process, an extended application of automation and artificial intelligence has far-reaching benefits and significant efficiency gains for banks.
Other areas ripe for further disruption are digital identities, secure electronic signatures and automated agreements or contracts. All these functionalities are desperately needed in a world that has shifted towards digital interactions at an unprecedented rate in the last decade and especially in the past two years. The KYC onboarding process is an expression of this overall trend and ties in with all of it.
2. The challenge of data remains.
When it comes to compliance technology, data remains the number one challenge.
Financial institutions of all sizes are still struggling with processing and correctly interpreting data from disparate systems. If, on one hand, it is important to aggregate data from different areas of the business, the complexities involved – especially for large financial institutions – present numerous risks related to data lineage.
The ubiquitous “Garbage in, garbage out” saying applies also to the area of AML and KYC, where having relevant data presented in an easy-to-consume way is fundamental to any decision on whether or not to onboard a new customer.
The golden standard to strive for is a holistic view on the customer, whether that’s an individual or a group of companies, able to highlight relationships between entities and individuals. Data normalisation, categorisation, graph databases, and machine learning all have a role to play to bring this holistic view to life, but they are simply tools. A combination of a knowledgeable internal team and a trusted external partner can help design a highly effective system to overcome the challenges related to AML and KYC data.
3. RegTechs are very special tech companies.
The benefits that are convincing many financial institutions to partner with RegTech firms include the usual advantages we associate with the tech sector: greater levels of innovation, agility, speed, as well as a digital-native outlook and a greater focus on customer experiences.
Yet, it would be wrong to think of RegTechs simply as typical tech companies.
As they look to digitally transform various aspects of the compliance function, companies in this space are held to a different standard. The Minimum Viable Product mantra, for example, has its limitations in a highly regulated sector such as financial services.
To be useful to a large FI, any product needs to be very much full-featured and error-free. Similarly, since the risks involved may be substantial, a “Move fast and break things” approach is not an option when a piece of software impacts legal responsibilities toward millions of clients or tens of thousands of employees.
4. Technology has a role to play in facilitating human interactions.
By partnering with RegTech firms, banks have a unique opportunity to use technology to get closer to their customer, while also transforming the AML compliance function beyond a set of repetitive tasks and tick-box exercises.
As counterintuitive as it might seem, one of the great advantages of RegTech is that it can help banks reduce the number of compliance-focused interactions with their customers, building a “more human” kind of business relationship from the start. Similarly, by relying on RegTech to automate repetitive manual tasks, compliance teams have more opportunities to apply their critical thinking and their ability to connect the dots, resulting in better AML controls and risk mitigation for the overall organisation.