KYC compliance strategies that your customers will love

KYC compliance strategies that your customers will love

Introducing: Anthony Bracco PNC Bank Greg Carmean Experian

Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win Sun Tzu, The Art of War 3 Experian 4/26/2017 Experian Public Vision 2017

Common client problems Regulatory compliance and fraud detection Client problems Regulatory Economic Customer Technology KYC violations carry billions of dollars in criminal and civil fines, possible jail time and negative company press Conducting KYC on businesses and beneficial owners to as well as identifying shell companies, shelf companies and commercial identity theft can be costly and both in dollars and resources Manual review and requests for additional documentation to meet regulatory requirements may create significant friction at the point of sale Need to use analytics, automation and workflow efficiencies to reduce customer acquisition costs and enhance customer experience while mitigating risk 4 Experian 4/26/2017 Experian Public Vision 2017

Anti-money laundering compliance challenges faced by organizations Increased regulatory expectations and enforcement of current regulations Having enough properly trained AML staff % of respondents Insufficient/outdated technology Too many false positive screening results Budget constraints and increased scrutiny of third-party reviews 0% 10% 20% 30% 40% 50% 60% 70% *Source: Dow Jones and ACAMS Global Anti-Money Laundering Survey 2016 5 Experian 4/26/2017 Experian Public Vision 2017

Increased losses associated with fraudsters that penetrate your defenses The typical organization loses 5% of revenues in a given year as a result of fraud While the median duration of the frauds in our study was 18 months, the losses rose as the duration increased schemes that lasted more than five years caused a median loss of $850,000 Source: Association of Certified Fraud Examiners Report to the Nations on Occupational Fraud and Abuse 2016 Global Fraud Study 6 Experian 4/26/2017 Experian Public Vision 2017

Reputational exposure that can impact you and your company Three-fifths of chief executives said they believed corporate brand and reputation represented more than 40% of their company s market capitalization. Source: World Economic Forum Executives with scandal-tainted companies on their resumes pay a penalty on the job market, even if they clearly had nothing to do with the trouble. Overall, these executives are paid nearly 4% less than their peers. Source: The Scandal Effect Harvard Business Review September 2016 7 Experian 4/26/2017 Experian Public Vision 2017

There is no silver bullet Regulatory compliance and fraud prevention are complementary but require coordination Balance customer experience with securing the right data to optimize your verification process Work with your vendor and compliance department to set responsible match cut offs Adopt a risk-based strategy, applying additional fraud checks to keep fraudsters out of your portfolio 8 Experian 4/26/2017 Experian Public Vision 2017

What is your biggest challenge in verifying business identities as part of your Customer Identification Program? Business match rate is too low, requiring excessive manual review Current business verification process creates too much friction Insufficient staffing to do adequate CIP and fraud screening when acquiring new accounts Poor data quality 9 Experian 4/26/2017 Experian Public Vision 2017

Identifying potential gaps 10 Experian 4/26/2017 Experian Public Vision 2017

Data quality More than one-third of the institutions noted that data quality and availability was one of their top operational challenges relating to their current CDD/KYC program Source: NICE Actimize Customer Due Diligence (CDD Market Survey, June 2015) Of financial executives survey, 33% stated that data quality was a significant challenge in investigating crimes. Source: PWC Global Economic Crime Survey 2016 Financial Services Industry Insights 11 Experian 4/26/2017 Experian Public Vision 2017

Areas of exposure across the business enterprise 12 Experian 4/26/2017 Experian Public Vision 2017

What are your organizational KYC and fraud blind spots? Intergroup and departmental communication Operational alignment Adequate staffing / training Budget management Policy alignment and governance Awareness of regulatory changes 13 Experian 4/26/2017 Experian Public Vision 2017

Operational optimization 14 Experian 4/26/2017 Experian Public Vision 2017

Adopting an enterprise view of risk Engage executive sponsorship Embrace a holistic customer view Collaborate across units / departments Optimize resources for remediation 15 Experian 4/26/2017 Experian Public Vision 2017

At what level of ownership does your company currently screen beneficial owners? 25% or greater ownership 10% or greater ownership Other 16 Experian 4/26/2017 Experian Public Vision 2017

Potentially preventable reasons for customer friction Data collection practices Redundant input fields Lack of field validation leading to dirty or incomplete data Failure to collect business and DBA name; physical and billing address Delays due to highly manual processes Limited use of automation and analytics Multiple vendor lookups Delays in obtaining hard copy documentation (e.g., utility bills) 17 Experian 4/26/2017 Experian Public Vision 2017

Complexities in authenticating business vs. beneficial owner identities Beneficial owner matching Comprehensive consumer bureau coverage (over 200 million credit active U.S. consumers) Broad coverage yields high match rates (95%+) using very tight matching parameters Verification results are often cross-referenced to SSN, accommodating name variations on bureau files Challenges to customer experience: Identification and verification of potentially multiple beneficial owners to meet FinCEN final rule 47% percentage of institutions verify beneficial ownership down to the 25% level 26% percentage of institutions verify beneficial ownership down to the 10% level* *Source: Dow Jones and ACAMS Global Anti-Money Laundering Survey 2016 18 Experian 4/26/2017 Experian Public Vision 2017

Complexities in authenticating business vs. consumer identities Business identities Headquarters Complex identifiers more challenging TaxIDs: Federal and State (the government doesn t make FEINs readily available) Name: Legal and trade Address: Headquarters/branch, parent/subsidiary Different business structures (i.e., corporations vs. sole proprietors) Names may include special characters (e.g., @, &, etc.) impacting matching Branch location Branch location 19 Experian 4/26/2017 Experian Public Vision 2017

Meeting your match Setting automated verification thresholds Most verification vendors will provide a measure of match confidence to enable automated match thresholds: Single numeric value (1-100 where higher scores indicate stronger match) Match codes that identify quality of match in addition to other attributes (e.g., current vs. previous address, branch vs. HQ location, number of sources matched, etc.) Probabilistic match score that provides proximity between the input data and data on file 20 Experian 4/26/2017 Experian Public Vision 2017

Example of business verification thresholds Scale 1 100* Perfect: 100 score character-for-character match Direct hit: 99 score missing Inc in name and suite number Consultation with your compliance department can help set appropriate cut offs Direct hit: 93 score slight name differences, different suite number 21 Experian 4/26/2017 Experian Public Vision 2017

The impact of Big Data technology New commercial search and match systems enhanced by Big Data search technologies impact on automated verification Impact on automated verification Enables higher match rates with greater precision Incremental high-confidence matches: 11% Records with improved match confidence: 5% Impact on manual review Enables interactive free-from searching (e.g., Google) Allows minimal search criteria, but provides greater precision as data is added 22 Experian 4/26/2017 Experian Public Vision 2017

Improving commercial customer identification experience and outcomes Business identity matching Headquarters Provide data that is as clean and complete as possible Many financial institutions will accept two of three commercial and three of four consumer verification fields as long as one of the fields is name Look for solutions that can verify business and owner in a single transaction Explore the use of probabilistic matching techniques Collect business legal names, DBAs, billing and physical address when possible more effort on the front end can significantly reduce manual reviews One regional bank s match rate went from 88% when submitting a single name and address, to 96% when submitting two names (i.e., legal and Doing Business As) and addresses (i.e., billing and physical) Branch location Branch location 23 Experian 4/26/2017 Experian Public Vision 2017

Sample fraud and regulatory approach How fraud and verification products can work together to solve client problems Automated verification Manual verification Enhanced due diligence Enhanced automated verification Account verified High risk account Document submission Low risk accounts No records found Enhanced due diligence Expanded fraud, reputational and compliance checks Approved 24 Experian 4/26/2017 Experian Public Vision 2017

Additional business risk indicators Business activity Inquiry activity Public record updates Trade activity Disputes Financial instability Business structure LLCs Sole Props Nonprofits 25 Experian 4/26/2017 Experian Public Vision 2017

Vendor assessment areas Data sourcing and management Coverage Currency Credibility Technical capabilities Accessibility Matching Analytic expertise Thought leadership 26 Experian 4/26/2017 Experian Public Vision 2017

Seeking constant improvement Openness to new ideas and innovation Stay abreast of changes in the industry Press your comfort zone Conferences and industry organizations (ACAMS) 27 Experian 4/26/2017 Experian Public Vision 2017

Expected outcomes 28 Experian 4/26/2017 Experian Public Vision 2017

Partnership pays Higher customer satisfaction Reduced cost and man hours Reduced fraud losses Better understanding of fraud losses vs. charge offs Improved profitability Reduced regulatory exposure 29 Experian 4/26/2017 Experian Public Vision 2017

There is no silver bullet Regulatory compliance and fraud prevention are complementary but require coordination Balance customer experience with securing the right data to optimize your verification process Work with your vendor and compliance department to set responsible match cut-offs Adopt a risk-based strategy, applying additional fraud checks to keep fraudsters out of your portfolio 30 Experian 4/26/2017 Experian Public Vision 2017

Questions and answers Experian contact: Greg.Carmean Greg.Carmean@experian.com 31 Experian 4/26/2017 Experian Public Vision 2017

Share your thoughts about Vision 2017! Please take the time now to give us your feedback about this session. You can complete the survey at the kiosk outside. How would you rate both the Speaker and Content? 32 Experian 4/26/2017 Experian Public Vision 2017