KYC (Know Your Customer) is a process that minimizes risk, enhances control & visibility, and increases transparency for secure finance. KYC Remediation is not a one-time task, as KYC and AML regulations are updated now and then globally. In this article, we will answer the questions of what is KYC Remediation and what is its impact on Compliance.
KYC Remediation
It is a process of organizing Customer data and information for Identification and verification and removing all the inconsistencies found in it, then moving towards the next steps. It is a process that ensures that customers are not involved in any financial crime at any stage of the KYC process. Financial Institutions and firms need to perform the remediation process as a double tier screening process. They can only initiate KYC remediation when initial information of customers is collected and stored. Here, the Suspicious Activity Report (SAR) can be filed once risky customers are identified.
Importance of KYC Remediation
Purposefully, Remediation process distinguishes between potentially risky customers and the normal ones. Identifying risky customers is important when a KYC regulation is updated and to have to monitor customers closely. Firms mostly carry out screening, identification and authentication on a continuous basis where internal compliance teams process the customer’s data manually or outsource it to a third-party data processing product. This process helps in providing a seamless experience, refining the data, monitor and screen it, and resolve the falst positives.
The Logic Behind KYC Mediation - Stepwise Approach
Identifying Obsolete Data and High-Risk Clients
The first step of KYC Remediation is to identify the outdated data and the high-risk clients. Key to execute this step successfully is to address the risk posed by customers and not updating every piece of information in the customer’s data files. Not every customer is risky, so identifying the highest risk customers and allocating resources to them at priority. In this way, firms can focus on important areas and manage the resources accordingly.
Data Cleaning
All the data collected needs to be identified and verified and returned as ‘clean data’ and then used for the business. Clean data is then added to the CRM systems.
Collecting Missing Client Identity
In the third step, the missing client identities or data is collected. A highly configurable API is a solution which classifies, organizes, and stored the missing data and client identities. It also fits in the collected missing data in to the relevant sections. Automated and cloud-based solution will efficiently verify customer’s data and documentation against multiple sources.
Ongoing Monitoring
Automated alerts, Red Flags are identified throughout the KYC Remediation since it is an iterative process. Continuous monitoring helps in avoiding more complexities and ensure due diligence all the way.
KYC Remediation WorkFlow - An Illustration
- A new client is onboarded and a client profile is generated and data is stored.
- Remediation is carried out where packets of client information are added including the missing data and updated data as per risk-based approach.
- Factors include the following:
- Operational Costs
- Average Handling Time
- New Client Growth
- Regulatory Risk
- Client Experience
- Manual Effort
AI Based KYC Remediation
AI-Based Remediation for KYC is a rising trend and companies are rapidly shifting on it. Since eKYC is need of the time for compliance, so the remediation also needs to be digitized.
Troubleshooting KYC Remediation
Here are few general tips to troubleshoot a KYC Remediation process:
- Digitally Transform legacy technology
- Improve onboarding process Side by Side
- Digitize the Self-Service in Client Verification Solutions
- Maintain the Enhanced Due Diligence as a best practice
Final Thoughts
KYC Remediation is an iterative process to ensure a risk-free customer onboarding experience. For seamless onboarding the high-risk clients should by identified timely. This is to prevent Money Laundering and Terrorism Funding at all costs. Dynamic Risk Assessment is the supportive activity in Remediation for KYC.
