Customer Due Diligence (CDD) Market Survey. Survey Results. Copyright 2016 NICE Actimize. All rights reserved.

Transcription

1 Customer Due Diligence (CDD) Market Survey Survey Results

2 TABLE OF CONTENTS Overview... 3 Polling Methodology & Respondent Demographics... 4 Key Findings... 5 Two-Thirds Impacted by Recent Regulatory Updates... 6 Top Operational Challenges & Priorities... 7 Top CDD/KYC Challenges & Priorities... 8 External Data Usage... 9 Develop CDD/KYC Strategies That Map To These Priorities ABOUT NICE ACTIMIZE... 11

3 Overview The past 12 to 24 months have seen a dramatic acceleration in regulatory focus in the CDD/KYC space. With this new global regulatory scrutiny comes an increased need to bolster CDD/KYC controls. The focus today is on beneficial ownership, tax evasion, and identifying the real people behind every account. Greater transparency is now a mandate for CDD/KYC, together with focus on organization-wide risk management controls and policy. To understand the impact that this dynamic regulatory environment is having on the AML industry, NICE Actimize launched a market survey in May 2015 to delve into the unique challenges and priorities in the CDD/KYC space. The main objectives for the survey were: UNDERSTAND IMPACT OF NEW REGULATIONS What are the top pain points being felt now and into the future as firms grapple with the impacts of these new regulations? GAIN INSIGHTS REGARDING OPERATIONAL PRIORITIES What are the challenges firms feel they are currently facing from an operational perspective and alternatively how is that driving priorities for the next year or two? IDENTIFY CURRENT CDD/KYC CHALLENGES What are the challenges and priorities for the next months and years specifically for CDD and KYC processes? EXPLORE USAGE OF THIRD-PARTY DATA How are firms using third-party data to augment their CDD and KYC processes, now and into the future?

4 Polling Methodology & Respondent Demographics The online survey was live for the duration of May 2015 and was promoted via multiple channels. In total, 381 AML professionals representing multiple geographies, institution types, and institution sizes participated in the survey. Geography Asked to indicate their primary region of responsibility, respondents answered as follows: 46% - North America 19% - Europe, Middle East & Africa (EMEA) 13% - Asia Pacific (APAC) 13% - Global Role 8% - Central & Latin America (CALA) 1% - Unknown Primary Business Unit Respondents indicated the primary business unit for which they had in responsibility for in their institution. The majority of respondents, 70%, indicated that they were responsible for banking business units, followed by MSBs (7%), Miscellaneous (7%), Securities (5%), Gaming (4%), Payment Processor / Network (3%), Government (2%), Insurance (2%), and Card Acquirer / Issuer (1%). The overall Banking category was comprised of the following: Institution Size Respondents indicated their institution size in billions of U.S. Dollars 25% 5% 4% 9% 9% 48% Under $5 $5 to 9.99 $10 to $39.9 $40 to $59.9 $60 to $99.9 $100 and above Primary AML Focus Area Asked to describe their primary focus area within anti-money laundering and risk management, 55% of respondents selected Customer Due Diligence (CDD) including KYC, EDD, CIP, and on-boarding. Other areas of focus of note included transaction monitoring (24%), and other AML functions (21%) including general AML, sanctions screening, legal and audit, financial crime, CTR, FATCA / tax regulation, other, and currency transaction monitoring. 21% 8% 4% 4% 4% 29% 24% 55% 20% CDD (KYC, EDD, CIP and on-boarding) Transaction Monitoring Other AML Functions Retail / Consumer Bank Commercial / Corporate Bank Private Bank / Wealth Management Banking (general) Investment Banking Correspondent Banking

5 Key Findings The survey findings reflect an AML compliance environment that demonstrates increasingly aggressive regulatory enforcement activity along with larger penalties and fines. Financial institutions have clearly moved AML risk management higher on their priority list, and CDD/KYC is core to those concerns. The main findings include: Sixty-one percent (61%) of financial institutions indicated that recent regulatory updates are affecting their approach and strategy towards CDD/KYC. The greatest operational challenges related to current CDD/KYC programs are data quality and availability, reliance on manual processes, and difficulty maintaining existing IT infrastructure. The highest operational priorities for the next 12 to 18 months, related to CDD/KYC programs, are to improve data management and data quality, streamline end-to-end processes, investment in new technology solutions and process automation, and training programs for existing staff. Beneficial ownership is the top most challenging element of CDD/KYC program and the top operational priority. Multiple third-party data sources augment existing data within institutions, with 27% of customers using seven different external data sources or more.

6 Two-Thirds Impacted by Recent Regulatory Updates It is clear that financial institutions are feeling the brunt of recent regulatory updates such as FINCEN s proposed beneficial ownership rule, 4th EU Money laundering directive and MAS 626 in Singapore. Sixty-one percent of respondents indicated that they were feeling moderate or high impacts because of these and other regulatory updates. Across regional responsibility, the results were similar. Fifty-nine (59%) percent of respondents with responsibility for North America indicated moderate or high impact, 50% with responsibility for Central and Latin America, 64% with responsibility for EMEA, and 68% with responsibility for APAC indicated the same. It is also clear that respondents are also affected based on their institution type. Of those who indicated their primary business units as retail/consumer banking or commercial/corporate banking, 62% and 66% respectively indicated moderate or high impact. 39% 61% Moderate or High Impact Slight, No Impact, N/A What this means for FIs is that as regulations are updated, they must ensure that their AML and CDD/KYC programs evolve to keep pace. There is a need to reevaluate these programs to ensure that they are complete, comprehensive enough to new CDD regulations, and flexible enough to address future regulatory and internal policy updates.

7 Top Operational Challenges & Priorities Top Operational Challenges From a list of seven choices, respondents selected the top three operational challenges they see related to their current CDD/KYC program. The top three choices selected were data availability & quality (36%), reliance on manual processes (36%), and difficulty maintaining existing IT infrastructure (35%). Why are these challenges of consequence to FIs today? Easy access to quality data is essential for accurate risk assessment. Modern CDD/KYC programs require data that is clean, structured, and reliable. Manual processes are labor intensive, subject to human error, and lack consistency. Furthermore, an increased workload can result from the need for more people to do things manually. The nature of the CDD/KYC industry is one of change as the business changes and regulations progress, an institutions IT infrastructure must evolve to keep pace. FIs cannot be reliant on an install and forget solution. Just as regulations change, the risk scenarios facing FIs are constantly changing. A system that cannot adapt to these new risk scenarios leaves an institution vulnerable to regulatory violations and sanctions. Top Operational Priorities Respondents chose the highest operational priorities for their institution s CDD/KYC program over the next 12 to 18 months. The top four choices selected were training programs for existing staff (44%), improving data management and quality (42%), streamlining end-to-end processes (39%), and investing in new technology solutions & process automation (39%). Why are these highest priorities for FIs today? Investment in training staff on existing programs can help institutions ensure that they are maintaining and encouraging a culture of compliance throughout the institution, preventing regulatory fines and sanctions. Improvement of data quality and availability and lessening reliance on manual processes were both top challenges selected by respondents, proving that in these two areas, their priorities align to the challenges they are facing. Clean data and automated processes facilitate a more accurate understanding of customers and the risks they pose. Streamlined end-to-end processes can provide institutions with a 360-degree of customer risk. Consolidated data and operations, where programs and systems are not siloed and data flows seamlessly from front office to back office are critical to achievement of the full view of the customer. Alternately, increasing staff was the second to last priority for respondents, indicating that FIs are looking to work smarter, not harder.

8 Top CDD/KYC Challenges & Priorities Respondents ranked a list of critical CDD/KYC program processes from not applicable, not challenging at all, to slightly, moderately, or extremely challenging. The list of program processes included: new customer onboarding, CIP & ID verification, identification of beneficial ownership structure, risk scoring, due diligence (CDD), enhanced due diligence (EDD), ongoing monitoring for risk changes, periodic review, and negative news and adverse media. Identification of beneficial ownership proved to be the single most challenging program element, with thirty-nine percent (39%) of respondents indicating that it was extremely challenging to their institution. The difficulty in collecting and validating beneficial ownership information combined with new regulatory requirements mean that FIs must work to establish new best practices to ensure full compliance. The highest priorities for respondent CDD/KYC program elements over the next 12 to 18 months parallel the biggest challenges highlighted above. Respondents selected up to three program elements that represented their highest priorities in the coming months: Identification of Beneficial Ownership Structure Ongoing Monitoring for Risk Changes Enhanced Due Diligence (EDD) Risk Scoring New Customer On Boarding Due Diligence (CDD) Periodic Review CIP & ID Verification Negative News / Adverse Media 11% 21% 21% 20% 30% 29% 51% 47% 46% Ongoing monitoring (66%), due diligence (51%), and enhanced due diligence (67%) were three program elements which respondents indicated as moderate or extremely challenging. Today, the focus is not just on onboarding of customers, but on implementing a repeatable process that allows institutions to monitor risk over time as customer details and activities change, and as internal policy and external regulators requirements change.

9 External Data Usage Respondents indicated the number of thirdparty data sources currently in use by their institution, taking into consideration all sources including web search engines, public company registries, regulator websites, and all data sourced from commercial data vendors. Twenty-seven percent (27%) of respondents indicated that they use seven or more thirdparty data sources while thirty percent (30%) use between one and three sources, and thirty percent (30%) use between four and six sources. 11% 2% None 1 to 3 30% 4 to 6 17% 7 to 10 More than 10 Don t know 10% 30% In order to compare third-party data usage today versus how institutions plan to use thirdparty data over the next 12 to 18 months, respondents selected from a list of five uses: verify data accuracy, enhance customer data collected, enrich beneficial ownership data, identify PEPs, search negative news and adverse media articles, and other. As seen in the graph below, the largest gap between current and future data usage is for enrichment of beneficial ownership data, tying back to the challenges and priorities discussed earlier The results highlight the necessity for firms to collect and manage information from multiple external sources in order to validate and complete their view of the customer view and enhance ongoing monitoring. Today Next months

10 Develop CDD/KYC Strategies That Map To These Priorities NICE Actimize s integrated AML solutions provide consistent monitoring and oversight across systems, data, operations, and lines-ofbusiness, to help mitigate risk and protect against breaches of compliance. Actimize AML subject matter experts keep abreast changes to the regulatory landscape, ensuring that our solutions evolve along with it. Below are five Actimize insights for developing a CDD/KYC strategy that maps to the industry priorities seen in the survey. 1. Explore automation of existing manual processes with new technology and guided workflows 2. Implement a risk reassessment framework that allows for proactive and timely reevaluate of risk triggering from both internal and external sources 3. Prepare for upcoming beneficial ownership regulatory updates through data, programs, analytics, and monitoring aspects 4. Leverage third-party data to enrich, enhance, and validate your existing data 5. Work with technology vendors whose systems are flexible, robust, and can evolve with regulatory landscape ABOUT NICE ACTIMIZE NICE Actimize is the largest and broadest provider of financial crime, risk and compliance solutions for regional and global financial institutions, as well as government regulators. Consistently ranked as number one in the space, NICE Actimize experts apply innovative technology to protect institutions and safeguard consumers and investors assets by identifying financial crime, preventing fraud and providing regulatory compliance. The company provides real-time, cross-channel fraud prevention, anti-money laundering detection, and trading surveillance solutions that address such concerns as payment fraud, cybercrime, sanctions monitoring, market abuse, customer due diligence and insider trading. Copyright 2016 Actimize Ltd. All rights reserved. No legal or accounting advice is provided hereunder and any discussion of regulatory compliance is purely illustrative. info@niceactimize.com linkedin.com/company/actimize 15EP15 CDD Survey