For years, technology firms have argued that their solutions can ease the pain of KYC checks on clients amidst the ever-shifting world of compliance. And yet, it seems as though the time taken to get work done isn't getting shorter – it's taking longer.

Carrying out know your customer (KYC) tasks is becoming increasingly costly and time consuming for banks worldwide, a report says as compliance demands continue amidst geopolitical crises.

The findings, from Fenergo, the European KYC and client lifecycle management software solutions firm, are likely to increase the focus on technology to help reconcile the need for rigorous tests with business efficiency and client service. This clash of efficiency versus compliance remains a major bugbear for the wealth and private banking sector. Sanctions against Russia and other geopolitical hot topics add to the mix.

Fenergo’s study found that it cost on average $2,598 to complete a KYC review for a corporate banking client in 2023, increasing by 17 per cent from 2022. Rising costs are a significant concern in the UK market, with banks incurring an average cost of $2,613 to complete a KYC review for a corporate client, up 19 per cent year-on-year.

Besides being 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, rising from 84 days in 2022. This trend is particularly stark in the UK, where firms have taken on average 17 more days to complete a KYC review this year than in 2022. 

Adding to strains 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 (1 per cent).

Turnoff
Slow onboarding processes, which are a turnoff for clients, are costing businesses lost revenues, the study found. 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 prioritizing financial crime risk in terms of their technology investment over the coming year, with 40 per cent of respondents wanting to bolster this area of risk.  

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 $410 million 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.

“Financial institutions across the globe have yet to make meaningful progress on streamlining KYC and anti-money laundering processes,” Stella Clarke, chief strategy officer, Fenergo, said. “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.”

The challenge of keeping abreast of data without losing efficiency has spawned a whole sector of tech-driven firms which can provide information on onboarding, KYC tasks, and more, such as smartKYC, Appway (now owned by FNZ) and ComplyAdvantage, among others.