Know your customer (KYC) tasks are becoming more costly – not only in terms of price but also time as 48 per cent of banks globally have lost customers due to a slow onboarding process. Delving into the topic further, Fenergo, a KYC and client lifecycle management (CLM) software solutions provider for financial institutions has published a new study of over 1,100 C-suite executives.
According to the study, costs have soared costing banks $2,598 to complete a KYC review for a corporate client in 2023. In fact, 30 per cent of financial institutions said KYC took up between 31 per cent and 40 per cent of their budgets. Fenegro reveals that despite processes being streamlined, many institutions still rely heavily on manual processes, with 22 per cent of firms employing between 2,000 and 3,000 people to process KYC.
“Financial institutions across the globe have yet to make meaningful progress on streamlining KYC and anti-money laundering processes,” said Stella Clarke, chief strategy officer, Fenergo.
“Most banks, not least those operating in the UK, still rely heavily on manual processes when it comes to KYC, contributing to lofty onboarding costs, and a greater risk of human error and regulatory breaches. This approach will no longer be fit for purpose over the coming months as financial regulators look to clamp down hard on money laundering.”
Investment priorities
The study also reveals that financial crime risk has fallen from the number one investment priority in 2022, to number four in the US. Meanwhile, operational risk for tech investment took the top spot.
However, this was not a global trend. In the UK and Australia, financial crime risk was financial institutions’ top priority, while in Singapore, less than 24 per cent saw it as such.
The report says: “The risk and compliance sector is experiencing a worldwide shortage sector of talent, which may also account for the increased length of time it takes to complete a KYC review and the higher costs. There are also widespread banking layoffs happening globally which will hit compliance departments hard in 2023.”
Time-consuming processes
Beyond growing increasingly costly, KYC checks are also taking banks much longer to complete. Globally, banks took on average 95 days to complete a KYC review in 2023, up meaningfully from 84 days in 2022. This trend is particularly stark in the UK, where firms take on average 17 more days to complete a KYC review this year than in 2022.
Adding to the mounting strain on banks is a worsening talent shortage, with the global average number of people involved in KYC tasks having fallen by 14 per cent in the last year. In the UK staff numbers have increased marginally (one per cent).
Nearly half (48 per cent) of banks globally said they have lost clients due to slow or inefficient onboarding processes, a figure that falls slightly to 39 per cent for banks operating in the UK. This may explain why UK firms are prioritising financial crime risk in terms of their technology investment over the coming year, with 40 per cent of respondents looking to bolster this area of risk. It may also be reflective of the UK’s growing reputation as a hub for money laundering.
The findings come amid a renewed push by the Financial Conduct Authority (FCA) to crack down on money laundering in the UK. Between January and October 2023, the FCA fined financial institutions in the UK a combined $410million for anti-money laundering (AML) compliance failures. The regulator is now also targeting cryptocurrency businesses conducting international transfers through its new ‘Travel Rule’, which came into effect on 1 September.
