KYC and KYB has never been more important and challenging

KYC and KYB has never been more important and challenging | Articles

13 August 2019 by Nadine Lucas

With the ever-increasing complexity of anti-money laundering (AML) and counter terrorism financing (CTF) regulations, and the increasingly global nature of the financial sector, banks and other financial institutions are spending a growing proportion of their budgets, energy, and time on implementing and adhering to compliance, AML, and customer due diligence (CDD) measures.

Customer onboarding is nowadays a lengthier and costlier process than ever. Taking up a significant proportion of employees’ working hours. Identifying the controlling interests of legal entities is a dragging investigative procedure that can take months to carry out. Customer information and customer risk scores are continuously evolving. All of these factors work together to make KYC, KYB and customer due diligence one of the biggest challenges facing financial institutions today.

While these increasingly complex requirements can feel demanding for financial institutions, they’re certainly implemented for good reason. The tools and tactics of financial criminals are continually changing and evolving. It’s not even enough to keep pace with these changes, financial institutions need to stay ahead of the game. How do they manage to do that, without incurring even greater costs?
Gaining a comprehensive understanding of the global state of KYB, KYC and CDD is a good point to start.


As soon as regulators and financial institutions catch up to the latest criminal tactics – through better advanced technologies and tighter regulations – criminals are already adapting even more complex methods. Because of the need to constantly adapt to new methodologies, it is an ongoing challenge for financial institutions to stay ahead of the game with money laundering, terrorist financing, and other financial crimes and to comply to new regulations.
The complex and ever-changing regulatory environment is but one of the many challenges facing financial institutions when it comes to implementing know-your-customer (KYC) and due diligence practices. Here are some of the other key issues that financial institutions are dealing with:

1. Identifying ultimate beneficial ownership

Recent surveys show that one of the greatest challenges of today’s KYB landscape is trying to identify ultimate beneficial ownership. Additionally, having to keep an updated track record of all controlling persons – particularly when they’re liable to change at any given time – is an ongoing struggle. Keeping tabs on all key stakeholders is a tedious task, and one that requires exceptional diligence – not to mention astute investigative skills.

2. Internal flaws in KYC workflows and processes

With banking salespersons spending an average of one and a half days each week conducting client onboarding, it’s clear that much of the KYC/KYB process is still being done through tedious manual methods. This kind of workflow process often fails to allow for conditional workflows, which can create all kinds of internal inefficiencies. As a result, the likelihood of human error – or even intentional oversight of key risk factors – is relatively high.

3. KYC/KYB spending continues to grow steeper

Year after year the costs on KYC/KYB and customer due diligence continue to grow. This trend shows no signs of decreasing. In 2018, KYC spending increased an estimated 18.3 percent. Excluding labour costs.

4. Increased onboarding time

According to a survey conducted by PMWA and KPMG 2018, customer onboarding time has increased. More than half of all banking salespersons estimate that they spend at least a day and a half of each week conducting onboarding time. More efficient customer onboarding processes would be expected as a result of the KYC spending. Unfortunately, that doesn’t seem to be the case.

5. KYC workflows and processes

It’s clear that much of the KYC process is still being done through dreary manual methods. As a result, the likelihood of human error – or even intentional oversight of key risk factors – is relatively high. This kind of workflow processes often fail to allow for limited workflows, which can create all kinds of internal inefficiencies.


Due to the ever-changing regulatory environment, KYC and KYB compliance is a rapidly evolving field. On top of that, technological innovation is rapidly transforming the possibilities for compliance solutions. Here are a few trends that may soon help ease the KYB challenges appointed on financial institutions:

1. Artificial Intelligence (AI)

With continuously changing money laundering and terrorism financing tactics, regulators and Financial Institutions constantly have to update their methods for fighting financial crimes. Artificial Intelligence could revolutionise KYC/KYB and CDD processes. Thanks to machine learning, KYC/KYB technologies and systems can now make observations and recognise patterns, allowing to make predictions about risk levels and customer behaviours.

2. Integration blockchain technology

With blockchain technology financial institutions would be able to update and exchange client information without the need for centralised storage which would tremendously help improve KYC/KYB processes and lowering the costs of complex, manually driven and time-consuming onboarding. The way that financial institutions currently store customer data, it’s impossible for them to share or exchange information across different banking systems. Although using these systems require complex hashing protocols to ensure compliance with GDPR, the implementation of blockchain technology to the CDD process cross-institutions would be a big step forward for the industry.

3. Digital forensics and biometric data

Nowadays it can be difficult to acquire robust information for onboarding purposes. Soon big data will offer endless potential, and financial institutions will likely be able to extract valuable insights from a wide expanse of digital information – from documents across multiple languages to social media content.

While these technologies are still being improved, developed and adapted to better fit the needs of financial institutions, there are already third-party solutions available to financial institutions that will be able to easily integrate such technologies into their existing platforms.