As readers in the industry know, in the evolving landscape of private banking KYC, staying ahead requires not just vigilance but innovation. The author of this article – an expert in the field – explains the territory and how his firm operates.

In this article, Dermot Corrigan, who is CEO of smartKYC, which is an open-source intelligence technology firm operating in the field of know-your-client operations for a variety of users, including those in the wealth management sector. He writes here about the screening issues for KYC that confront private bankers and wealth managers. Considering evolving current events and changing regulatory requirements, this remains a critical topic. The editorial team are pleased to share Corrigan’s thoughts (more on him below this article), and we invite readers to respond. Jump into the conversation! The usual editorial disclaimers about views of guest writers apply. Email tom.burroughes@wealthbriefing.com

A highly respected former boss of mine, who was a prominent British Army Intelligence analyst in his past life and an avid mountaineer in his free time, used the term ‘sharp side of the mountain’ to describe the most challenging aspect of a situation. I would contend that Know Your Customer (KYC) screening for the private banking and wealth management (PBWM) industry falls into that category. In this article, I will explore why this is the case and how cutting-edge technologies are revolutionizing risk monitoring.

The challenges of KYC screening in private banking and wealth management
Private banks and wealth managers operate in a unique space where the pursuit of profitable opportunities intersects with heightened risk profiles. If regulated entities are mandated to adopt a risk-based approach, certain clients targeted by private banks and wealth managers will likely fall into the higher-risk category. 

First, these financial institutions often explore opportunities in emerging and frontier wealth markets, which, despite their potential, inherently carry perceived risks. Second, the sums of money involved can be significant. Third, the investment products sought by these clients may carry more risk, compared with traditional investment products. Consequently, these banks and wealth managers must conduct rigorous due diligence during onboarding, surpassing the risk assessments typical of mainstream financial institutions.

Considering both intrinsic and extrinsic risks

Certainly, private banks and wealth managers are concerned about the typical risk factors such as: is the person on a sanctions list or watchlist, or is there any significant negative media coverage about them? However, at smartKYC, we also consider toxic associations as a form of adverse risk – a connection to an organization, theme, or even ideology that might not align with the bank's risk policy or values. In our opinion, these all constitute intrinsic risks. 

What’s more, private banks and wealth managers often consider other factors as well known as extrinsic risks. Even if the target client doesn't have any intrinsic risks, other intelligence, such as their journey to wealth, their lifestyle, or their network, might raise red flags. These may not be reasons to end the relationship entirely, but they could be enough to rate them as a higher risk than they would be otherwise, and therefore to place them on a shorter re-screening cycle.

Addressing the challenges of re-screening for enhanced due diligence
When conducting enhanced due diligence, private banks and wealth managers are faced with the following challenges:

-- The need to monitor thousands of sources; 
-- Deciphering large amounts of data; 
-- The requirement to do this process repeatedly; 
-- Monitoring in multiple languages; 
-- The need to monitor smaller subsets at a time; 
-- Dealing with naming conventions; and 
-- Receiving too many alerts and irrelevant “noise.”

smartKYC adheres to a set of principles that are designed to address these challenges efficiently and effectively, as follows:

1. Harmonize structured, semi-structured and unstructured sources with federated search technology
For financial crime teams, there is no single source of KYC automation. In most cases, teams build a bespoke mix of sources that accords with their risk policy, geographic operations, lines of business or, in some cases, brand preference. Such sources will be structured (e.g. watchlists and corporate database), semi-structured (e.g. court rulings) or unstructured (e.g. web news). Means of access might differ (API, scraping, bulk data transfer). Some will be free, some not.

smartKYC’s automated federated search technology harmonizes all desired public, professional and private sources in a unified search, content analysis and workflow tool. There are obvious efficiencies with this approach but also synergistic benefits too, including profile enrichment, identity disambiguation, corroboration and co-mingling of results, and delivering a precise, dynamic and holistic perspective of client risk.

2. Identify and corroborate sources of wealth 
Similarly, information on your client’s source of wealth comes from structured and unstructured sources. smartKYC harmonizes sources of information to corroborate the sources of wealth and identify other potential sources of wealth not previously disclosed. And, by combining your suspicious transaction monitoring system with smartKYC, you will receive automated enhanced due diligence checks on any suspicious payments or unknown beneficiaries or senders, alerting your financial crime department of any potential threats, in real-time, automatically and at scale.

3. Distinguish between controversies and legal issues
When conducting adverse media monitoring, it is essential to differentiate between legal issues and controversies. While controversies may not necessarily imply legal wrongdoing, they can still adversely affect an organization's reputation. 

In the past, adverse media screening was relatively straightforward. However, with the introduction of anti-money laundering regulations, institutions need to consider a broader context beyond legal matters. What’s more, considerations now go beyond the regulatory and have extended to reputation. For instance, when Adidas severed ties with Kanye West due to his anti-Semitic remarks, it sparked a controversy. Notably, West did not commit a crime, but his behavior deemed him as a toxic association, leading to his removal by JPMorgan Chase. Given that financial institutions now factor in such considerations when making decisions, it is crucial to monitor both legal issues and controversies effectively.

4. Address multilingual challenges with advanced multilingual natural language processing
Private banking and wealth managers operate on a global scale, necessitating proficiency in multiple languages for effective risk management. Relying solely on machine translation does not suffice. Languages differ in structure, alphabets and scripts; direct translation often misses subtle nuances and misunderstands idiomatic expression. Instead, advanced technology such as multilingual natural language processing (NLP) is needed to understand documents and articles as a human would, extracting factual intelligence, at speed. smartKYC's technology, for instance, identifies all textual elements in a piece of text, regardless of source language, alphabet or script, thus enabling comprehensive monitoring across diverse linguistic landscapes.

5. Regularly review, verify and update information post onboarding
Due diligence does not end at onboarding. Financial institutions and wealth managers need to regularly re-verify customer information, review and update customer risk profiles, monitor customer transactions and online presence to detect suspicious activity. With smartKYC, you can receive alerts on material changes to client risk profiles as reported in corporate databases, registries or open web media. 

The constant flood of news can be overwhelming, making it challenging to separate signal from noise. However, smartKYC's advanced fact extraction technology tackles this issue head-on, ensuring that alerts are relevant, genuinely new information, and are delivered with appropriate timings.

6. Monitor defined sets of data 
Many financial institutions are now looking to transition from interval-based rescreening cycles to the more dynamic model of perpetual KYC, where alerts are sent to the KYC function immediately for review. But with so many millions of news items generated every day, from thousands of sources and in multiple languages, how can you be sure to receive need-to-know alerts rather than irrelevant noise? smartKYC's product, smartEYE, solves these issues by watching your world. By monitoring a defined set of media, compliance teams can receive alerts of emerging risks that watchlists may be slow to find and take prompt action to avert potential threat.

7. Eliminate false positives and repetition with advanced name handling technology and fact extraction
One of the challenges in KYC is disambiguating hits to ensure that they are relevant to the client in question. smartKYC employs sophisticated disambiguation techniques, parsing through vast datasets to identify unique attributes and distinguish between individuals with similar names or backgrounds. By using a variety of technologies such as name origin detection, fuzzy matching, and nickname databases within a larger optimization engine to score names for similarity, smartKYC’s tailored approach provides accurate, precise results.

At the heart of smartKYC's value proposition lies its ability to streamline the re-screening process. Traditional methods often struggle to differentiate between genuinely new information and reiterations of previously known data, especially in news monitoring, as it is inherently repetitive. 

For example, though there might be a new, seemingly innocuous mention of Person X, if the same passage also mentions that ‘in 2020 they were acquitted of tax evasion charges,’ most adverse media search tools will present this as new information.

 
However, if Person X had been onboarded using smartKYC, this information would not have been flagged as a new risk during a refresh, because the tax evasion charge would have already been presented to the analyst and established as a known fact. Therefore, no new alert would be necessary.

This nuance is incredibly important when your customer base numbers in the hundreds of thousands or more and adverse media is important to you. Unlike other adverse media tools, by leveraging advanced algorithms, smartKYC ensures that pertinent updates are accurately flagged, allowing analysts to focus on genuine risks rather than redundant information.

8. Accentuate the positive
With ever-tighter regulation and the need for enhanced due diligence when onboarding both individuals and entities as customers of your firm, it is important to remember what the C in KYC stands for: client, not criminal.

We use the phrase “relationship intelligence” because this needn’t be just about risk. KYC shouldn’t be the exclusive preserve of the compliance function. I started my career in sales, and it was drummed into me that your “edge” was gained by knowing as much about your target as possible; background, hobbies, the nature and direction of a business, etc. Quite rightly, compliance will say that extracting the positives isn’t our responsibility and besides we already have enough on our plate. But the business might need to think about a more holistic approach because looking for positive events and indicators is just the flip side of the same KYC coin. The business, not necessarily compliance, could be watching for opportunity as well as risk using the same technology, tailored to the needs of the business line – a liquidity event, an asset disposal, a personal event, a specific corporate action.

Such things are understandably far from the minds of financial crime professionals but positioned as part of a broader client lifecycle management play in private banking and wealth management, the monitoring investment argument may be given additional heft and not seen as just another grudge compliance purchase.

Moving towards perpetual adverse media monitoring
The evolving risk landscape demands continuous vigilance, transcending periodic refresh cycles. Perpetual adverse media monitoring represents the pinnacle of risk management, the peak of the mountain, if you will. 

Overcoming the challenges of repetition, irrelevance, “noise” and multiple languages in adverse media screening, requires sophisticated tools. Our white paper, originally published in Money Laundering Bulletin as Eyes Always Open, delves into this topic and provides 10 best practices for perpetual adverse media monitoring.

Discover real-time risk monitoring, tailored to your risk-based approach
smartKYC’s latest product smartEYE, provides a customizable platform that empowers institutions to stay ahead of emerging threats, providing real-time insights into evolving risk profiles. Unlike other KYC products, smartEYE:

-- Watches the world’s news and social media commentary in real-time, 24/7 to deliver precise risk alerts as soon as they are reported;

-- Carries out automated news analysis ensuring that alerts are risk-classified according to your risk framework, are specific to your client, and contain new (rather than repeat) information; and

-- Is truly multi-lingual so you can be as confident of your adverse media monitoring in languages such as Russian, Arabic or Chinese, as you are in English. 

With smartEYE, banks receive risk-relevant, real-time alerts that allow them to act decisively and quickly. Compliance teams must no longer wait for a periodic refresh cycle. Instead, they receive adverse media trigger events in the form of precise alerts, as that news breaks. smartEYE represents the ultimate solution for perpetual KYC risk monitoring.

See this process in action by booking a demo. 

In the evolving landscape of private banking KYC, staying ahead requires not just vigilance but innovation. As regulatory scrutiny intensifies and client expectations evolve, smartKYC emerges as a trusted ally, offering tailored solutions to mitigate risk and drive sustainable growth. By embracing cutting-edge technologies and adopting a proactive approach to compliance, financial institutions can conquer the sharp side of the mountain and navigate the path to success with confidence.

Learn more at smartKYC.com

For more information please contact:
Dermot Corrigan, CEO, Dermot.Corrigan@smartkyc.com
Hugo Chamberlain, COO, Hugo.Chamberlain@smartkyc.com

About the author
Dermot Corrigan has held senior executive and board level positions with a host of information services and media brands including LexisNexis, PRNewswire, Independent News & Media, and Frost & Sullivan.