Founded in 2015, Know Your Customer provides digital onboarding solutions to financial institutions and regulated organisations globally. The company builds its KYC platform as an interconnected set of web apps, APIs, databases and pre-trained machine learning models – and is helping to change the game in digital corporate onboarding.
The inspiration behind the creation of Know Your Customer came from the challenges Claus Christensen – the CEO – faced in the area of corporate onboarding at a previous firm. “I was on the advisory board of a PropTech company and we needed to roll out KYC of Asian corporate entities at scale. We looked around for technology that would make this project manageable, but we found that corporate onboarding even more than the KYC of individuals involved many manual steps and the work of staff. With this considered, we decided to band together, incorporate the business and build the technology ourselves.”
The whole Know Your Customer system was built on the basis of the Microsoft Azure Cloud. Christensen remarked, “We constructed the system in a way so that we could deploy it on premises if needed. However, we found that every single client has stuck to cloud deployment as the advantages – such as scalability, security and business continuity – are just too big.”
The five pillars of KYC
One of the key benefits of digital onboarding for many companies has been the time and cost-effectiveness it brings to the table. Prior to digital onboarding, an individual would be required to provide their data either in-person or through the mail. Alongside being a costly and time-consuming process, conducting traditional onboarding in the age of the Covid-19 pandemic may lead to some companies become outliers.
For those financial institutions that are looking to digitise and automate their corporate onboarding journey, what are the challenges and possibilities? According to Christensen, Know Your Customer has identified five key pillars of corporate KYC compliance that are streamlined and digitised by its platform. What are these pillars?
Christensen stated, “The first is document collection – this is the part that is normally most irritating for the onboarded customer. This is not the case with our platform, since we retrieve these documents directly from their official source – the company registries – and we do so in real time instead of using stale databases of questionable quality. This is not the same as providing an upload facility for customers as you’d see in some products. Our approach removes the burden of procuring these documents from the customers and removes the burden of verifying them from the compliance team.
“The second pillar is data extraction and assessment. Here we automate the most, as our solution uses artificial intelligence, OCR, and natural language processing to identify and extract shareholders and UBOs automatically from the official documents. The third is KYC case management – with our platform, compliance teams are able to see a customer holistically, combining data, documents and compliance decisions into one view. Compliance team management and signoff workflows reside in this space. Especially in larger firms, this is often seen as the area that presents the biggest challenges.
“On-going monitoring is our fourth pillar. We integrate directly with leading AML watchlist providers to perform on-going screening automatically against PEPs, sanctions, adverse media and the like. On top of that, our system also automatically updates the corporate structure and names of directors with fresh information from the registry on a schedule. This is perpetual compliance rather than one-off onboarding.”
The final pillar is the company’s reporting engine, which is designed to keep everything monitored and on cruise control as well as simplifying regulatory reporting. Christensen remarked that where Know Your Customer’s system shines is that it significantly pushes the factor of automation in each category instead of just guiding the compliance users and relying on manual processes.
Making the vendor-client relationship work
As the RegTech industry continues to grow and evolve, there is an ever-growing requirement for the sector to make sure it gets its relationship with clients right, and in a way that suits them. How can they best do this?
Christensen commented, “The first step is always acknowledging the challenges. The big picture is that vendors with a tech DNA just work differently than large FIs. For a large financial institution, working with a younger RegTech company can yield great results. How? First off, RegTech firms are generally more innovative and can bring the latest technology to the financial institution.
“RegTechs also normally move faster, accelerating the time to market. In addition, the staff of these companies are more often than not in tune with younger generations and therefore can bridge these worlds more easily. Lastly, new RegTech businesses can be surprisingly cost-efficient, especially if compared with more established vendors.”
However, there can also be a few challenges in the vendor-client relationship. According to Christensen, most of them result from issues such as cultural differences, different responsibilities between financial institutions and tech firms and different time horizons. He cited two examples in particular, “Long-term project thinking in FIs compared to agile, iterative models in tech companies. The agile model makes sense in the fast-changing customer-centric world, but organisations that are 150 years old with 10 different management levels often struggle with that. Not everything has to be cut down into 5-day sprints, but this is an area where the FIs should move to ensure the success of these projects.
“Another area where the tech companies need to catch up is in adapting to the responsibilities of the much larger FIs – such as larger numbers of stakeholders, politically sensitive areas, and risks of multi-billion-dollar fines or losses. I’m afraid ‘Move fast and break things’ doesn’t quite cut it when a piece of software impacts legal responsibilities toward millions of clients or tens of thousands of employees.”
Reliable data and trends
With the proliferation of data offering new possibilities for companies to innovate and develop successful KYB strategies, it is also becoming increasingly important that the data being used is of a good quality. Christensen believes reliable entity data should be the first step of any successful KYB strategy, “If we step back and take a wider view of the industry and how it has developed over the past decade, we notice we notice that, after digitising processes, data is even more important.
“In compliance, we need the data to not just be of high quality – it is truth we need when we are fighting crime. That is why data lineage – where we get the data from – is so important. For that reason, it is crucial to go straight to the official government source, the documents held with the company registries and sometimes tax authorities.”
The digitisation of processes has been a key and ongoing trend in the RegTech space, however, with many processes now digitised, the industry is turning towards more difficult problems to solve. What are some of these challenges? One of the most important trends, Christensen believes, is how the industry can automate instead of just replicating manual processes in front of screens – and he states one of the trends that is helping to deal with this challenge is to use gradually more AI-based solutions.
He added, “Inside the trend of increased machine learning, there is also a maturing happening – the users and institutions know about pitfalls and challenges in using AI and start guarding against those with deliberate policies and processes. AI under InfoSec, or ethical use of AI with guards against bias in training data would be examples there.”
Long term plans
Having been in existence for over half a decade, Know Your Customer is now looking to spread its wings and grow, and it has its eyes firmly focused on the future.
Christensen said, “We are still relatively young as a tech company, and we have ambitious growth plans in terms of client revenue and product development.
“However, there is a more important long-term mission to the company. In the big picture, we have all enjoyed more affordable better-quality products and services and an overall fantastic increase in living standards in many areas due to global trade and cooperation. But so have criminals and money launderers. Societies need to protect themselves and have reacted with stricter regulations. In the world of AML and KYC, regulators accepted that this meant a larger burden on both financial institutions and customers, and the disadvantages to smaller SMEs and new market entrants vs established larger companies.
“At Know Your Customer, we work to level the playing field again by using automation and digital processes to reduce that burden on both sides. This will allow regulators to stay strict, help societies to fight criminals, both while reducing the burden of regulations.”
Copyright © 2021 FinTech Global