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The Paradigm Shift in KYC Client Outreach

Business Process Services

February 1, 2023

Client outreach is one of the most critical and challenging processes within the Know-your-customer (KYC) function. It requires the financial firm to maintain a fair balance between delivering the right customer experience and attempting to adhere to AML regulations. The client outreach process involves acquiring KYC information directly from a client. This process is ideally required when a financial firm has exhausted avenues to source information from trusted public sources or internal databases.

A firm could enable significant efficiencies in its client outreach process by adopting a digital strategy to engage effectively with customers. Unfortunately, this is not the case at most financial firms.

The Challenges that Hamper Seamless Compliance and Optimal Experience

The client outreach function at most firms is fragmented due to inefficient management practices, usage of traditional collaboration tools (e.g., emails, lengthy excel sheets, word-based templates, etc.), manual governance process, and processing delays. All these hiccups result in poor customer experience and a gap in AML compliance.  Additionally, the process often involves relationship managers’ being allotted a significant outreach burden, which leads to a loss of quality time with customers, resulting in revenue loss.

Does an ineffective outreach stem from the process harmonization itself?

Broadly the two major areas leading to inefficiencies in the customer outreach function are –

The first one is, the process of collecting KYC information from trusted public sources (i.e., public data collection)

The output of this independent research process essentially decides if customer outreach is needed. Most firms use a manual data collection approach to aggregate the available information about a customer, which is time-consuming and highly prone to errors. Additionally, compliance teams in most financial firms battle with significant challenges to train the staff on KYC requirements due to changing regulations, limited availability of SMEs, and the resultant increase in workload.

This space has seen a lot of good development in recent times with many data and Fintech platform providers trying to automate the data collection process using technologies like API-based connectors, integrated workflow, robotics, AI and ML solutions. However, we still witness many firm struggling to implement an optimized data management and data governance structure due to rigid legacy platforms and the unavailability of the right operating model.

The second one is the process involved to source data from the customer (i.e., private data collection)

There are several challenges that financial organizations face when it comes to streamlining the approach for data collection from customers. Very few firms have even invested in focused technologies that enable standardized outreach function. Some of the critical contributors leading to an ineffective outreach process include:

Lack of an effective collaboration tool: Most KYC engagements today with customers happen through emails. The outgoing correspondences are drafted manually and often lack standardization, requiring manual assessment of requirements and creation of forms. This leads to errors in interpretation and provides limited guidance to customers on requirements and standards.

  1. Lack of an effective workflow: The outreach process is managed using emails with no proper workflow to track discipline across, which includes manual case allocations, hand-offs between various teams on emails, and manual tracking of follow-ups and escalation requirements. All of this causes difficulty in case tracking, multiple emails due to analysts missing out on details and poor customer experience.
  2. Archaic data collection approach: Most firms require clients to update lengthy word documents and excel spreadsheets for requirements, where the onus typically lies on the customer to filter relevant requirements basis the criteria. Additionally, KYC is an iterative process where every new set of information received could trigger additional requirements and lead to multiple iterations.
For example, a leading crypto firm uses a lengthy excel spreadsheet to collect KYC data from its corporate clients that contain 7 sheets, 80 fields and a full-page description on how to update the file. This generates poor customer experience and leads to further delays in KYC compliance. At most financial firms, KYC analysts need to maintain multiple excel sheets to track audit trails and statuses in the outreach process.

For example, in a large US bank, the analysts are required to manually add a comment on every interaction and follow up to gather information from the client. This information is then tracked and distributed to the management and front office weekly. There is also a separate governance report to track whether the analyst had updated the last occurred interaction.

KYC compliance is not always the top agenda for most customers and even relationship managers (especially when the customer is already onboarded). The focus is doing more business, and compliance takes a back seat.

Hence, the process requires a very strong governance – for case tracking, escalations, reviews with business and ultimately deciding on blocking accounts of non-responsive clients. However, a fragmented manual approach lacks real-time visibility, encourages malpractices and causes significant delays in compliance.

Room for improvement

The industry has undergone significant transformation in recent years to strengthen the fight against financial crime. While the focus has been to ensure regulatory compliance, financial firms need to be mindful of enriching customer experience too.

It is important to invest in a strong customer engagement team and a smart approach to centralizing and standardizing the way the outreach process functions within a firm. This is achievable through an efficient and intelligent automation solution, either integrated within the existing CLM or used as a standalone solution.

Here are a few best practices that could be adopted using an intelligent and automated solution.

1. Effectively managing and automating outgoing correspondence

To enable optimal efficiency an institution needs to manage all correspondences in a more controlled and auditable environment, which can be achieved by enabling a solution having –

  • Secured integration with email servers; eliminating the need for outlook
  • Enabled auto-creation of data collection based on business rules
  • Automated outbound communications using auto-generating (HTML and Word) templates
  • Facilitate automated event-based triggers (e.g., Auto-reminders, escalations for unresponsive clients and more)

This could significantly improve the processing timeline, reduce manual efforts and drive standardization allowing for more confidence boost for the RMs and reducing involvement in straight-through cases.

2. Effectively tracking incoming responses and governance

This aspect of the outreach process provides a lot of opportunities to optimize. An institution can enable suitable governance through automation by applying a solution that supports features like –

  • Auto indexing of incoming correspondences for individual KYC cases
  • Automated assessment of incoming responses, digitizing field-level information and determining open items
  • Complete and automated process audit trail (recording the times, dates and messages) and track how each client has responded
  • Provide a real-time matrix of documents/data received and those that remain outstanding
  • Track and send automated reminders to customers
  • Provide automated MIS, dashboards and reports enabling real-time visibility on the progress of the cases

3. Enable a digital channel to engage with the customers

A firm could provide the right customer experience and also achieve a more optimized outreach process by enabling a digital portal solution that allows to –

  • Engage with the customers through a personalized request for information asking customers only the questions appropriate to their KYC profile
  • Empower customers to be custodians of their data and allow self-service capabilities using a digital portal – whether it is a questionnaire (e.g., source of funds, nature of business, etc.) or adding details on related parties (E.g., beneficial ownership structure for corporate clients)
  • Allow customers to digitally self-certify information and submit documents electronically
  • Ensure integration with the core KYC rule engine and platform to enable a dynamic data-gathering process
  • Enable intelligent alert notifications using business rules, smart OCR, AI and ML – to reduce chances of misses e.g., customers could be prompted in case a wrong document is uploaded or if the information is being misused

Firms should still provide an omnichannel and flexible experience to the customer–allowing them to still be able to send correspondence outside the digital portal. However, as the interactions are embedded in the solution, they could still be managed in a more controlled environment.

The Automation Revolution that Drives Innovation

Banks that have streamlined their KYC processes have achieved numerous benefits like speedier processing times, improved risk management, better customer experience, lower costs and boosted revenue.

Ajay Jain, who leads the financial crime compliance practice at Hexaware, stresses in his statement, “An institution can enable significant efficiencies in the customer outreach process through digitization, automation and governance. But it is necessary to move away from traditional approaches onto a more controlled environment – to unlock an optimized customer outreach function”.

Hexaware KYC Digital Outreach Solution

Hexaware’s BPS-Banking has established our proprietary KYC outreach solution to support banks and financial services firms. Our solution features a centralized platform to manage end-to-end client outreach functions within a secured and automated environment. This solution enables significant efficiencies in the outreach process, thereby enabling a more robust KYC compliance process.

  • Enabling 20-30% efficiencies: through automation of correspondence creation, request tracking, auto-response reviews & enabling auto chasers
  • Aiding strong governance:Leveraging built-in audit trail features, auto-tracking and escalation function
  • Empowering Better client experience: Leveraging digital portal, ensuring standardization and better controls

Hexaware endeavors to empower enterprises with friction-free, future-forward digital solutions that facilitate digital transformation and modernization at speed and scale for enhanced business outcomes.

About the Author

Ajay Jain

Ajay Jain

Ajay Jain leads the Financial Crime practice at Hexaware and has over 16 years of experience in various roles supporting multiple roles across various Global Banking clients. He has extensive experience in managing and transforming KYC and AML Operations for Corporate, Investment Banking, and Retail banking divisions. He has done MBA in Finance from Mumbai University.

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