Getting to know all about your customer: the case for continuous monitoring

Hugo Chamberlain explores the growing importance of continuous monitoring for private banks, wealth managers, and other large financial institutions.

Currently, when it comes to know your customer (KYC) requirements, the industry’s focus is mainly on the first stage of the customer relationship, with regulators prescribing thorough due diligence at the onboarding stage, augmented with the occasional periodic refresh. 

But in these uncertain times when fortunes and indeed reputations are being made and lost in days and weeks rather than years, is the current guidance enough to ensure you really do know all about your customer?

After all, political exposure, close associates, shareholders, directors, adverse media, legal issues, sources of wealth and corporate affiliations can change the profile of a customer at any time. 

So, what do firms need to be aware of today to not only minimise risk but also seize the opportunity for tomorrow? 

Weighing up the real cost

Firms are more than aware that changing customer circumstances could negatively affect them, but the economic climate makes it unlikely that they will change existing KYC practices proactively, particularly if it is not enforced by the regulator. 

It is a common perception that the prospect of implementing a continuous or high-frequency KYC monitoring programme will have prohibitive capital and operational costs due to the management of increased workloads. However, hanging back on making an investment in this area could, in fact, be a false economy. 

If your customer is involved in poor environmental, social, and governance (ESG) behaviour, the truth is you could be adversely affected as a result. Damage to reputational risk travels fast and costs a lot to fix in the long-term. 

Solid ESG practices are becoming increasingly important to investors, consumers, employees, and other stakeholders – a trend apparently unaltered by the COVID-19 pandemic. According to recent data from Morningstar, the amount of money flowing into ESG funds rose by 72% in Q2 2020. The data is pointing to the fact that continually knowing your customer is only going to get more important for today’s investors.

Strengthening the client connection

The practice of collecting and monitoring relationship intelligence is not just beneficial from a risk management or compliance perspective. There are plenty of opportunities that can be garnered too. 

Rich and ongoing knowledge of a client can improve service offerings and increase satisfaction and loyalty, which will ultimately deepen wallet share.

Take this example. News breaks on your client’s recent international expansion. You could learn about this while idly scrolling through LinkedIn, joining one of many supportive blue thumbs’ ups and making a mental note to get in touch with them tomorrow. 

Or, you could be alerted immediately and have the tools at your disposal ready to work out how to best serve them for their next venture. 

Which one of these scenarios is more likely to earn further business from that customer? 

Using automated technology means you can do this at scale for numerous clients, alerting their respective relationship managers to the new opportunities.

Spec the tech

Harmonising all KYC sources and running concurrent searches on all clients’ daily activity is the best way of getting a holistic view of all their respective potential risks and, most importantly, their needs and requirements. 

But being bothered every five seconds by alerts about every customer isn’t ideal either. Especially if it’s either a false positive or the same news story appearing again and again. 

Multilingual semantic searches are important here, as they can filter out the white noise and minimise the risk of seeing the same risk or opportunity multiple times. 

Another essential element in KYC tech is the ability to generate risk intelligence in real-time, drawing information from private and public sources across the world and fully harnessing the power of artificial intelligence.

We believe it is inevitable that regulatory guidance will add high-frequency monitoring to the two existing KYC pillars of onboarding and periodic refresh. As Claude Shannon once said, information is the resolution of uncertainty, and what could be better than some certainty these days?

Hugo Chamberlain is Chief Operating Officer at SmartKYC

The views and opinions expressed in this Viewpoint article are solely those of the author(s) and do not reflect the views and opinions of Fintech Bulletin.