A report says that UK banks are likely to spend spend significant sums on KYC checks that aren't necessary.

UK banks will waste around £10 million ($12.7 million) annually on inefficient know your customer processes in three years’ time, according to a report by Consult Hyperion.

Consult Hyperion’s study, which is called AMLD4/AMLD5 KYCC: Know Your Compliance Costs, has been published as banks gear up to implement the Fourth European Anti-Money Laundering Directive (AMLD4). KYC is the process of a business identifying and verifying the identity of its clients.

The report commissioned by Mitek examined the existing costs of KYC checks for banks, the impact of ALMD4/5 directives, and the potential of electronic identity (eID) verification. 

The regulatory changes will increase the required frequency and scope of the essential KYC checks performed by banks and other financial institutions. It was found that typical UK banks will waste around £10 million a year in operational costs in three years’ time, five million more than institutions currently waste due to manual and inefficient KYC processes.

Inefficient KYC processes cost the average bank around £47 million a year, the report said.

The report also found suggestions made by the AMLD5 directive, to use government-backed eID schemes to improve KYC processes, will not be ready for some time. The report said advanced mobile technology should be used to bridge the gap. Consult Hyperion found mobile technology could reduce costs and the risk of sanctions by lowering AML fraud as well as increasing the conversion rate for online and mobile bank account applications. 

“The message to all financial institutions is clear: The cost of KYC checks is much too high, placing too much reliance on inefficient and error-prone manual processes,” said Steve Pannifer, author of the report and chief coordinating officer at Consult Hyperion. “Getting it wrong is both costly and damaging. New rules will result in much higher fines when serious failures in compliance occur. 

“Financial institutions cannot afford to wait for eID to be widely available. Advanced mobile technology provides a straightforward mechanism now to reduce both cost and risk as well as remove friction from the user experience, increasing top line revenue," he added.