Typical UK bank will waste £10m annually on inefficient KYC checks as AMLD4 regulation comes into force
June 26 2017 - 2:50AM
With the deadline today for full implementation of the Fourth
European Anti-Money Laundering Directive (AMLD4), a new report from
Consult Hyperion, commissioned by Mitek, reveals that the average
UK bank is currently wasting £5 million each year due to manual and
inefficient Know Your Customer (KYC) processes, and this annual
waste is expected to rise to £10 million in three years. AMLD4 and
the anticipated Fifth European AML Directive (AMLD5) increase the
required frequency and scope of these essential KYC checks
performed by banks and other financial institutions, resulting in a
further inflation of operational costs.
The report, titled AMLD4/AMLD5 KYCC: Know Your Compliance Costs,
examines the existing cost of manual and inefficient KYC checks for
banks, the impact of new AMLD4 and AMLD5 directives, and the
potential of electronic identity (eID) verification. AMLD5 suggests
using government-backed eID schemes, such as GOV.UK Verify, to
improve KYC processes. However, the report concludes that most eID
schemes will not be ready for some time and recommends advanced
mobile technology to bridge the gap.
Key Findings
- Inefficient KYC processes cost the average bank £47 million a
year
- Total costs for KYC processes range from £10 to £100 per
check
- In the UK, 25% of applications are abandoned due to KYC
friction
- AMLD4 will impose fines as high as 10% of annual turnover for
serious breaches
- eIDs for digital onboarding are several years from being widely
available to the banking sector
- Mobile technology could save £5 million in KYC costs, rising to
£10 million in three years
“The message to all financial institutions is clear: The cost of
KYC checks is much too high, placing too much reliance on
inefficient and error-prone manual processes,” said Steve Pannifer,
author of the report and COO at Consult Hyperion. “Getting it wrong
is both costly and damaging. New rules will result in much higher
fines when serious failures in compliance occur. Financial
institutions cannot afford to wait for eID to be widely available.
Advanced mobile technology provides a straightforward mechanism now
to reduce both cost and risk as well as remove friction from the
user experience, increasing top line revenue.”
KYC processes, where an institution verifies the identity and
financial conditions of customers before doing business, is a
critical business practice and regulatory requirement. The high
cost of KYC compliance currently is the result of a reliance on
manual checks, as well as other inefficiencies, which create costs
including document archival, time spent by staff performing checks,
specialist training, and the need to recruit compliance officers to
ensure processes are being implemented correctly.
The Consult Hyperion report concludes that AMLD4 and AMLD5, due
to take effect in twelve months, will increase these costs
substantially as the frequency of KYC checks increase and more
transaction types fall within its scope. These checks also have a
major effect on conversion rates, particularly on those applicants
with a limited credit history.
The directives addressed in the report point to
government-backed eIDAS, the regulation that aims to create digital
identities that will have the same legal status as traditional,
paper-based credentials, to reduce costs. The lack of a timetable
for eID access means that banks need to adopt mobile identity
verification technology, backed by machine learning to automate and
improve fraud detection, as soon as possible. This technology will
dramatically reduce costs and the risk of sanctions by lowering AML
fraud as well as increasing the conversion rate for online and
mobile bank account applications.
“Any customer will prefer taking a selfie and snapping a photo
of an ID credential over a manual process that means taking
documentation to a branch,” said Sarah Clark, General Manager for
Identity at Mitek. “Banks cannot afford to wait for governments to
create eID systems to make this possible, and risk their
competitors offering a better onboarding experience and attracting
customers who increasingly demand this.”
In addition to costs, banks are at risk of massive punitive
fines if they fail to meet their obligations under the law. For
example, in January 2017, the FCA handed a bank a £163 million fine
for a serious breach in anti-money laundering controls, the largest
in its history. Under AMLD5, regulators can impose fines as high as
10% of annual turnover for serious breaches and if this had been
applied in the above case, the fine could have been as high as
£2.5bn.
The report is available for download here:
http://www.miteksystems.co.uk/Know-Your-Compliance-Costs
About Consult Hyperion
Consult Hyperion is an independent strategic and technical
consultancy based in the UK and US, specialising in secure
electronic transactions. We help organisations around the world
exploit new technology for secure electronic payments and identity
transaction services from mobile payments and “chip and PIN” to
contactless ticketing and federated identity. Our aim is to assist
customers in reaching their goals in a timely and cost-effective
way. We support the deployment of practical solutions using the
most appropriate technologies and have globally recognised
expertise at every step in the electronic transaction value chain,
from authentication, access and networks, to transactional systems
and applications.
Find out more: http://www.chyp.com/
About Mitek
Mitek (NASDAQ:MITK) is a global leader in mobile capture and
identity verification software solutions. Mitek’s ID document
verification allows an enterprise to verify a user’s identity
during a mobile transaction, enabling financial institutions,
payments companies and other businesses operating in highly
regulated markets to transact business safely while increasing
revenue from the mobile channel. Mitek also reduces the friction in
the mobile users’ experience with advanced data prefill. These
innovative mobile solutions are embedded into the apps of more than
5,600 organizations and used by tens of millions of consumers for
mobile check deposit, new account opening, insurance quoting, and
more.
For more information, visit www.miteksystems.com or
www.miteksystems.co.uk
Notes to Editors:
Media contact
Alan Miller
CCgroup for Mitek
mitek@ccgrouppr.com
+44 203 824 9200
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