Know Your Robot: Why KYC & RPA Were Made for Each Other

KYC has been through a lot in the last decade. The rapid development of technology alongside the breakout of financial crime scandals have put the industry through the wringer. Just like pressure turns coal into diamonds, pressure has caused KYC to evolve and progress as an industry.

How was it able to do that? Through the use of Robotic Process Automation (RPA). This new breed technology slowly yet steadily has developed into the ideal dancing partner for KYC. The pairing has proven to be a great fit and it has a very promising future with the potential to finally align business and government objectives.

Are you ready to take a deep dive into this interesting relationship between KYC and RPA? Let’s do it.

Regulation is Tightening The Screws

Before delving into the ins and outs of Robotic Process Automation and what it can do for the KYC industry, it would be interesting to examine the parameters leading to the growing need for RPA help. The Know Your Customer industry is subject to constant scrutiny, revision, and amendments. Governments are tightening the screws on businesses through policies and regulation that’s becoming more and more specific and particular.

The recent Panama and Paradise Papers fiasco was a milestone for the relationship between governments, businesses, and KYC requirements. Both scandals revealed that taking advantage of offshore accounts, nominees, trusts, shell companies, and a variety of other loopholes of the existing system was a way of hiding funds, evade taxes, and launder money.

The need for addressing the issue of the beneficial owner became evident very quickly.

The Final Rule

The Final Rule came into effect on May 11, 2018, and is a new set of rules from FinCEN regarding customer due diligence (CDD) requirements. Under this FinCEN CDD Rule, collecting, maintaining and reporting of beneficial ownership information becomes a requirement for financial institutions and merely an option.

Europe did not stay put and its take on tackling anti-money laundering (AML) and know your customer (KYC) came shortly after.

EU’s 5th AML Directive

On June 19th, 2018, the 5th EU Anti-Money Laundering Directive (AMLD 5) was published in the official journal of the European Union. Amongst many proposed changes to tackle terrorist financing, increased beneficial ownership requirements were one of the main areas of discussion put forward by the Directive.

The industry and geography of businesses were starting to become irrelevant for financial controllers and regulators. It became very apparent that businesses could no longer avoid thorough KYC and AML processes. Huge fines, scrutiny, and bad press snowballed right after the announcement of the new measure and the need for a new approach was vital.

What Does This Mean For Businesses?

Let’s get some perspective on what KYC processes meant in financial terms for companies and what KYC procedures will mean for companies in the near future. According to a Thomson Reuters survey, “Financial institutions with $10 billion or more in revenue have seen their average spend on KYC-related procedures increase to $150 million from $142 million in 2016. The number of deployed employees skyrocketed to an average of 307 KYC compliance professionals in 2017 from 68 in 2016”.

Bear in mind, this was the situation before the measure and policies mentioned above.

The implementation of the aforementioned policy is pushing those numbers through the roof. The policy is not only calling for an increase in the number and depth of data collected by companies but it’s demanding KYC to be conducted on both a retroactive and ongoing basis. According to a Burton-Taylor report, global AML/KYC spending was projected to increase by 17.5% reaching a record of $905 Million In 2019.

Enter Robotic Process Automation (RPA)

1.Customer Information Gathering & Processing

The current framework used by Financial Institutions in gathering information from customers is usually the following: printed papers, PDFs and online forms.

The pain points of this framework are multifold. Updating, organizing and editing these files becomes challenging if you consider the volume of information and clients FIs deal with on a daily basis. This is where RPA can work its magic. It can be used to harness, process, analyze and extract structured and unstructured data.

The point of reference here is not the mere digitization and simplification of the process. Using RPA can actually add an extra layer of value for businesses as it can crawl additional information about the customer from public domain/databases which the client would have otherwise not submitted in the first place.

2. From a budget killer to a budget maker

Customer information is often dispersed across different systems and software. What RPA can easily do is centralize information and give FIs a holistic view of customer data. What that does for the company is two-fold. One a KYC level, the business is now able to create an up-to-date, comprehensive customer profile with a depth of information like never before. From a marketing and sales perspective though, the business acquires a very strong tool to push its products and services. Profiling clients and knowing as much as there is to know about them allows for tailored and personalized campaigns and opens up a very direct communication channel. Even though RPA tools are primarily seen as a way to verify the identity of customers, mitigate customer risk and adhere to KYC regulations, the malleability of their technology allows them to become a source of income for the business.

3. Optimizing human resources

Nobody is claiming that RPA will replace compliance officers. If anything, RPA is the perfect tool to elevate their importance and make them one of the most valuable business units in an FI. Human errors are a calculated risk in any occupation but the repercussions differ from industry to industry. A human error in a KYC environment could prove to be costly for the business but even if it doesn’t, it still requires time and effort to fix it.

Instead of analyzing data, making inferences and drawing conclusions on findings, compliance officers end up correcting manual mistakes or play catch up with the latest regulatory developments. By employing the services of RPA, regulatory changes will automatically be added on the system and distilled to a readable and actionable format. RPA can optimize the use of KYC human resources, making them decision-makers instead of task managers.