Banking Crisis Shakeout: A Call for Automated KYC

The ripple effects of the Silicon Valley Bank (SVB) and Signature Bank failures earlier this month, and more recently Credit Suisse’s historic sale to UBS, have left an industry on edge. As the shake-ups shakeout, there are undeniably still many moving parts.

While it appears that many banks moved at record speed to accommodate new customers, it is unclear what (if any) shortcuts they took to accomplish this herculean feat. In a banking environment where BSA/AML compliance teams are already understaffed and overworked, how can organizations easily ensure BSA/AML regulatory compliance — especially as increased regulatory scrutiny is likely still to come?

AI Digital Workers provide automated Know Your Customer (KYC) solutions delivering efficiencies from onboarding and extending throughout the relationship (and beyond).

Deposit Boost: Customer Onboarding

In the wake of SVB and Signature, customers rushed to switch banks for safety and to diversify banking relationships. It is reported that Bank of America had a surge of $15 billion in new deposits in a matter of days. And while many other big banks like JP Morgan Chase, Citigroup, and Wells Fargo also saw a surge in new deposits, community banks also received a significant deposit boost.

The speed at which banks onboarded new customers over the past few weeks is highly unusual. The traditional onboarding process takes far more time and can involve multiple departments within the bank.

Even for the most straightforward cases, with little financial and legal risk involved, it can take between 20 and 60 steps and involve the management of 5 to 10 (or more) documents. The same documents can be processed several times by different departments at various stages of the process, creating confusion and leading to errors. A single manual error by an analyst, such as a typo or a missed data point, can have material effects. This inefficiency is also expensive for compliance programs, costing anywhere upwards of $50 million for a mid-sized bank, while larger banks easily spend more than $500 million annually.

AI Digital Workers, like Darryl and Kendrick, can help automate and minimize errors in the onboarding process. Darryl is a fully digital Customer Due Diligence Program (CDD) Analyst, whose primary mission is to protect the organization from risky client relationships by collecting information and documentation to conduct due diligence on customer relationships. While Kendrick is a fully digital Customer Information Program (CIP) Analyst, who protects the organization from inappropriate client relationships by verifying the identity of individuals behind personal or corporate accounts.

By using Darryl and Kendrick as an automated KYC onboarding solution, you can reduce the whole onboarding process to minutes rather than days.

Drowning in Alert Volumes and Keeping Tabs on Negative News

Sanctions and KYC place arduous demands on financial institutions. The rules are complex, and the reputational and business consequences of failure can be very high.

The discipline of KYC has grown beyond the verification of a name, address, ownership, and control. Today, it’s an ongoing ‘evergreen’ process. Many regulators now expect firms to apply ongoing negative news screening (aka adverse media monitoring) to all high-risk client relationships.

Though seemingly straightforward, this process can pose a large operational challenge. An analyst searches for news articles about a person or company, reads each of them for indications of suspicious activity, and creates a report if there appear to be any concerns — escalating as needed. Each of these manual reviews can take 20–30 minutes per search. Depending on the size of the institution, the need for frequent and ongoing searches of enormous volumes of content (the bulk of which is irrelevant) can cost millions annually.

Another critical component of KYC controls is name screening. This determines whether a customer is a politically exposed person (PEP) or on a sanctions list. Bank employees get thousands of alerts every day from their name-screening software, list providers, and databases — with the majority of them being false positives — and spend a substantial amount of manual effort to review and resolve them. Mistakes and failure to comply can lead to heavy penalties and allow bad actors to misuse a bank’s services.

Automating the PEP and sanctions alert reviews helps drastically lower the number of false positives an analyst must review manually, thereby reducing the time and manual effort required while increasing accuracy and auditability. And, automating adverse media monitoring saves analysts’ time, money, and allows employees to work on higher-value work.

Evelyn is an AI Sanctions and Adverse Media Screening Analyst. Evelyn streamlines sanctions name screening and the negative news search process and saves analysts’ time by reviewing and dispositioning adverse media and customer sanctions alerts as part of KYC or periodic refresh process. Evelyn has shown the ability to eliminate the manual disposition of 80% of false-positive sanctions alerts and an 80%+ reduction in manual review time for adverse media alerts.

The Benefits of Automating M&A

The past few weeks have seen an increase in M&A activity with UBS’s takeover of Credit Suisse, NYCB’s acquisition of a portion of Signature Bank, and Silicon Valley Bank’s “interest from buyers.”

On average, there are approximately 400 bank mergers per year. In a recent McKinsey survey of 20 corporate-development professionals at U.S. banks of different sizes and with different strategic priorities, 60% said the next 18 to 24 months will offer banks value-creating M&A opportunities that are better than those of the last two years.

A regulatory requirement for M&A is that all customers of the joint entity must adhere to a common set of KYC guidelines. That means 1) aligning on the KYC standards, which may be selecting those of one of the original organizations or a newly defined set, and 2) performing a KYC Refresh on the subset (or entire) customer base with new guidelines in place.

Adding KYC AI Digital Workers during M&A allows organizations to automate operational work that is often performed manually due to the high levels of documents and doc-like data within key processes. M&A is the perfect opportunity to align around automated processes before optimizing the portfolio of systems. It can simplify the merger regarding how the two organizations execute in a common way, expediting better customer experience (CX) while improving employee experience (EX).

WorkFusion’s duo of fully digital, KYC AI Digital Workers — Kendrick for CIP and Darryl for CDD — work together to create a common KYC standard, increase team capacity, reduce the need for temporary labor, reduce run time costs, and increase quality, scale, and speed.

Under the Regulatory Magnifying Glass

Multiple banking crises over the course of a short few weeks have created a crisis of confidence. Now is not the time for financial organizations to take on additional risks that may potentially hurt their reputation, damage their stock price, or shatter customer trust. This is the time to ensure that your organization’s BSA/AML compliance is operating at its highest level before any potential regulatory action.

Today, regulators and industry groups alike are advocating that financial institutions innovate using technology and other process innovations. FinCen’s Innovation Initiative states, “Responsible innovation is an important part of safeguarding the U.S. financial system against new and evolving threats to the nation’s security and the financial system related to money laundering, terrorist financing, and other serious financial crimes, particularly those which FinCEN has identified as national priorities.”

WorkFusion’s AI Digital Workers support regulators’ expectations and industry best practices in the deployment of AI and ML. With Digital Workers, banks and financial institutions are provided an explainable AI and ML model with documentation and evidence that align to MRM.

Click here for a demo of WorkFusion’s AI Digital Workers.

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