The Future of Financial Crime Risk

FDM held a virtual webinar with experts in the Financial Crime Risk space across notable organisations. The panellists spoke about lessons learned and how to best prepare for forthcoming challenges and developments in the KYC space.

Since 2015, FDM has launched the careers of 1,200 individuals across different business segments and jurisdictions in Financial Crime Risk. By 2024, it is expected that there could be 100 remediation programmes in the UK banking sector. This presents tremendous opportunities for FDM and people who want to work in the Financial Crime Risk space.

Topic 1: Onboarding clients effectively while meeting the regulatory changing demand

The panel highlighted the main challenges that remain in Client Due Diligence (CDD) and Enhanced Due Diligence (EDD) with one of the key drivers being regulatory jurisdictions that exist in this sector. Keeping up with regulatory changes and implementing the latest money laundering directives is just one of the challenges.

Other challenges include:

• Increased regulatory scrutiny
• Resource constraints
• Overall cost to maintain compliance
• Business growth targets
• Pressure to grow the business under strict regulations
• Maintaining the overall client experience

Individuals must be highly skilled and trained in the most recent iterations of compliance procedures in order to make client onboarding a smooth, fast and efficient process. To do this, it is key to have a comprehensive methodology with a pre-assessment stage in place. Companies must leverage KYC utilities to gather all necessary information and then approach the client with additional tailored questions through a KYC questionnaire. Interaction between the due diligence and compliance functions also need to be aligned to different types of products and risks to ensure a structured process to escalate compliance issues.

Topic 2: How to maintain effective QA platform so your AML framework is fit for purpose

Panellists remarked that banks find it difficult to maintain effective QA processes because of difficulties in assessing risk, which can delay client onboarding.

What can be done to counter this?

• Fast-track onboarding needs to be put in place for specific clients
• External audit companies need to be leveraged to identify control-fail areas in the compliance process
• Banks should have an exception-based process in place to more effectively manage risk

When the process for client onboarding sits with an operational team, the Relationship Manger (RM) is central to assessing risks. In managing client pushback, evidence is crucial which can include policy documentation, statements and the risk appetite by which the firm wishes to run. Sustainability is also essential in managing trigger events to allow firms to cope with the flow of work on an ongoing basis.

Topic 3: Delivering operational changes through competent resources for onboarding and due diligence

The recruitment process needed to address large remediation plans without leading to adverse effects on Business as Usual (BAU) activities. If a partner is brought on to support, both parties need to ensure they understand each other’s requirements from the start. Firms also need to have the ability to bring in additional resources that are trained and experienced in KYC/AML remediation to reduce onboarding training to just the specific operation and systems that are relevant in the due diligence process.

Providing resources through a trusted provider, such as FDM, reduces the recruitment burden in both time and costs on the firm, placing the burden of due diligence checks on the provider.

To avoid tying up skilled internal BAU resources, speed in completing the project is essential. The bank’s current FTE will be impacted if time is spent in addressing backlogs, determining methodologies, and as more time is spent on remediation, the overall workload will be affected. 

Q&A session

At the event’s closing stages, the audience was encouraged to ask questions from the guest speakers.

Q: Six months in from Brexit, what are the top two challenges banks are facing?

Brexit was a confusing time for everyone involved. Clients were desperate to trade, but the information was not available for them to do so. The panel agreed that boundaries put in place restricted their clients’ abilities to trade. New policies were needed to ensure that clients could be onboarded safely in this new reality. In retrospect, Brexit didn’t cause too much of a challenge, but it made the need to ensure that the right kind of questions were being asked during the onboarding process all the more important.

Q: How can CDD requirements be tailored to avoid damaging client relationships? 

The industry experts responded that there is a need to understand the client’s challenges, while also keeping in mind the size of the client and their financial team. The questions also need to be tailored to the size of the client, the ability of the client’s financial team to answer the questions and the challenges the client might face. Where possible, firms should aim to request all information necessary for onboarding at the same time rather than piece-meal to avoid client frustration. This can be difficult if the onboarding process is lengthy and information changes over time.

Q: Will perpetual KYC replace periodic reviews?

Perpetual KYC allows firms to focus on high-risk clients. Under perpetual KYC, a customer database is linked to a good AI tool, allowing for event driven KYC certification for most clients. Ultimately, the future of CDD is in AI innovation and digitisation.

Closing remarks

The future of CDD needs to be in leveraging better use of data, considering there are so many more available data sources and organisations need to meet these challenges head-on. Regulators need to be part of this journey so the future of financial crime is collaborative, comprehensive and compliant with an ever-changing eco-system.