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The future of KYC and CIP: What banks need to know

Major security challenges still exist as everyday banking continues its migration to online transactions and services.


As everyday banking continues to shift online, the importance of having the most efficient and effective Know Your Customer/Customer Identification Program (KYC/CIP) solutions in place has never been greater.

From just a cellphone, customers can open accounts with banks, brokerage firms and many financial institutions. They can apply for credit and invest in stocks by opening an app. And thanks to innovation in compliance technology, they can do so safely and quickly.

Here is a look at some of the biggest challenges that still exist when it comes to KYC/CIP:

Onboarding at scale

One of the top challenges facing banks and financial services companies today is trying to walk the tightrope between offering customers a seamless onboarding experience while satisfying strict compliance requirements. The new global playing field further complicates matters: KYC and CIP today means knowing and identifying customers who can be down the block or across the globe. And of course, the expectation is that this can be done in minutes, if not seconds.

To best meet these challenges, firms should rely on systems and technology platforms that are flexible and configurable. In a global economy, banks never know where in the world their next client will come from. Flexible systems allow for continuous upgrades and modifications to meet any new demands or unforeseen challenges that arise.

When vendors hit snags

During the early days of the pandemic, one global KYC vendor with manual-verification staff in India was caught off guard when the country locked down almost overnight. Most of the staff didn’t have work-from-home setups, so identification processes across its clients’ platforms went from taking minutes to taking days. This highlights just one of many risks involved with relying too heavily on one vendor.

A solution is use multiple vendors. It is most ideal for firms to have a vendor-neutral system incorporating multiple KYC/AML vendors, each with its own set of functionalities. Connecting to multiple vendors enables financial institutions to offer a la carte solutions for clients, and there’s backup if one of those vendors goes offline. It also enables banks to pick the best pieces of each vendor’s offering when creating their own verification system.

Many lenders rely on DecisionLogic, which allows them to quickly verify a potential borrower’s banking information. When possible, banks should keep DecisionLogic software on their end of the back end to avoid storing client data with vendors. This way, if a vendor goes down, the bank still has the latest data on their end.

Faking verification

Financial institutions can have all the right systems in place to “verify” customers, but scammers are becoming even more sophisticated. It is too easy for bad actors today to buy somebody’s full identity — with photo IDs and selfies — for less than $1 on the black market. This means that, even with the most advanced compliance solutions available, it is still possible to fake it.

Smarter machines can help offset this trend. Linux-based software solutions for CIP that incorporate the latest AI technology can make sure that a live human is in fact opening an account. New checks to come from these solutions may require that the user perform certain functions, and these solutions will also ensure that the photo ID matches the account holder.

Optical Character Recognition (OCR) technology will also continue to improve. Today’s OCR process is somewhat cumbersome and slow in relation to other KYC/CIP processes, but then again, slow in this context means it may take minutes instead of seconds. And it will certainly continue to get faster.

There is also a great need for a universal blacklist of scammers who have been caught in the act. For this to be most effective, it should be easily accessible and updated in real time. Fraudsters can usually do damage across multiple financial institutions in the time it takes for one to report them to the related agencies and see action taken.

As technology continues to simplify many tasks in the industry, compliance teams will face greater and more complex challenges, so it is important that the industry evolve to get to the next level of speed and security.

Mark Ford is chief compliance officer at ViewTrade Securities.