Know Your Customer remediation or KYC remediation is one of the most important processes when it comes to banking and the operations of financial institutions. It is the process of updating and optimizing clients’ data by financial institutions to comply with the latest regulations. The KYC remediation process is done to ensure that each customer’s anti-money laundering risk is assessed in a timely manner and assigned risk ratings are updated based on the changes in KYC regulations.
In this article, we will look in detail at the meaning of KYC remediation, the KYC remediation process and how financial institutions can ensure easy and timely KYC remediation with modern technology.
What is the Meaning of KYC Remediation?
Regulators across the globe have required financial institutions under them to perform thorough Know Your Customer (KYC) practices and verify the identity of their clients. Financial institutions must also keep meticulous records of all clients, flagging those that pose an elevated risk or have made suspicious transactions. Changes in transaction behavior must also be recorded. This insistence on KYC and record keeping helps countries track and persecute financial criminals in an efficient manner.
KYC remediation is the process through which businesses ensure their clients are not taking part in any money-related crimes. It is central to preventing any company from getting caught up in corruption, terrorist financing, and money laundering.
KYC remediation is defined as the process through which companies gather information on their clients through KYC, conduct a risk assessment, and create their KYC customer profile. It highlights the highest risk elements associated with each client. Once the initial data is collected, they need to be updated or refreshed periodically so that changes relevant to customer risk assessment are captured.
What Is The Need for KYC Remediation?
For KYC remediation, institutions use various tactics to screen, verify, and identify clients and their identity. The aim is to verify the identity of the person you are in business with. If a client signs up to a bank or any other financial institution with insufficient information, it may be easier for them to get away with money laundering or other financial crimes, then vanish without a trace. This can cause companies to face serious legal complications, leading to hefty fines and the possibility of jail time for negligence.
To avoid these unpleasant outcomes, KYC remediation is necessary for businesses. The most effective way to carry out remediation is by conducting a thorough risk assessment of your clients to determine what level of monitoring each client needs.
What is the KYC Remediation Cycle?
KYC remediation cycle refers to the frequency of the KYC data review. The frequency of this review is determined by the institution’s overall AML compliance approach and the overall AML risk assessment. In general, the frequency can be within a range of 6 to 36 months, where high-risk customers will be reassessed more often, and low-risk customers are subject to a lesser number of risk assessments.
An efficient and timely KYC remediation process can significantly minimize the compliance risk of financial institutions. Also, it helps institutions better understand their customers and tailor their product and service offerings wisely.
What Is The Process Of KYC Remediation?
Financial Institutions must adhere to strict rules set by their regulators and other monitoring authorities regarding KYC. They play a significant role in the financial sector and are trusted with the responsibility of reporting suspicious financial activity and preventing the incidence of money laundering. KYC remediation forms the base, enabling financial institutions to fulfil this responsibility.
The collection of information
Companies must first have a detailed information collection process for each client. Once they have gathered enough data on a client, they can begin the remediation process. This is when the company organises all of the information they have gathered, clarifies contradictory data, and determines potential gaps in the information.
Risk assessment and reporting
Once this process of KYC remediation has been completed, financial institutions can successfully determine what level of risk each client poses in terms of money laundering and other financial crimes. This is an integral step that determines whether a financial institution must report a client who is suspected of corruption or money laundering to the authorities. Regulators tend to focus more on a risk-based approach when dealing with KYC remediation: it shows that they have a fair understanding of risk-exposure and assessment.
KYC remediation clearly forms an integral part of any financial institution’s AML compliance programme. It is the key to being fully aware of what each client is doing and the first layer of protection for the institution against potential backlash due to illegal transactions.
Executing KYC Remediation Steps: Challenges
Here are the usual challenges noticed in the KYC remediation process:
Poor onboarding processes
Onboarding lays the foundation for the entire KYC remediation process. It is the step where financial institutions collect information about their clients. This is a critical step as well as a complicated one, as it can often be hard to collect every single detail needed about a client. Inadequate methods of obtaining, maintaining, and updating client data can also make the onboarding process ineffective.
Managing large volumes of data
The sheer volume of data that firms need to collect on each client is daunting. This data is often collected in a haphazard manner from third-party sources. There is no ownership when it comes to the data because it lies in so many hands. Further, there is no accountability for poorly managed individual client records.
While most financial institutions and firms put significant effort into their anti-money laundering (AML) programmes, including using state-of-the-art AML software, the ambiguity of some of the regulatory guidelines for KYC remediation makes it difficult to implement them successfully. Firms are often unclear about whether they are expected to investigate every data point of information that their clients file under a remediation programme, or solely focus on the key risk areas.
Frequent changes in regulations
Regulatory compliance guidelines are also subject to frequent changes and updates. This poses a challenge for financial firms to meet compliance standards and avoid having to face the consequences of non-compliance.
Due to the lack of direction and clarity from regulators, firms often end up trying to remediate everything and really struggle. They waste their time and effort by focusing too much on lower-risk issues and may subsequently run out of time or overlook high-risk issues.
The easiest way to overcome the challenges of meeting regulatory compliance standards is to accurately assess the risk each client poses, rather than gather every bit of data point that is listed. This is an effective way for organizations to optimize their remediation efforts and focus on high-risk areas first.
The future of risk assessment
Tookitaki AMLS offers a Customer Risk Scoring (CRS) module which updates the risk profiles of customers dynamically, using new generation technologies such as machine learning and big data analytics. The module addresses the market needs and provides an effective and scalable customer risk rating solution by dynamically identifying relevant risk indicators across a customer’s activity map and scoring customers into three risk tiers – High, Moderate and Low.
The solution comes with a powerful analytics layer that includes actionable insights and easy explanations for business users to make faster and more informed decisions. It provides an accurate customer risk rating with a few high-risk customers and many low-risk customers.
To know more about our CRS solution and its unique features, book a meeting with one of our experts here.
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