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The Automation of AML & KYC Regulation for Asset Managers

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The Automation of AML & KYC Regulation for Asset Managers

April 2019
Kevin O'Neill
Global Head of Buy Side Division

With the amount of Anti-Money Laundering (AML) and Know-Your-Customer (KYC) enforcement actions, Asset Managers must turn to technology-based automation to allow them to re-focus their energy to delivering a better customer client and investor experience.

With a recent influx of large-scale Anti-Money laundering (AML) and Know-Your-Customer (KYC) enforcement actions, those within the Asset Management sector must now find the perfect balance between active regulatory adherence and delivering a positive end-to-end client experience (CX) in order to succeed going forward.

To illustrate how Asset Management firms and other financial institutions are being scrutinized more by regulatory bodies with respect to AML/KYC compliance, Fenergo compiled a database of monetary penalties highlighting over $27 billion dollars in AML/KYC and sanctions-related from 2008-2018. Affected financial institutions had inadequate policy, processes, procedures and systems, in addition to poor governance and oversight in many cases.

A similar report also found that the vast majority of these regulatory costs were associated with an AML/KYC-specific labor force. It comes as no surprise that Asset Managers are keen to explore the continuous growth of automatic AML/KYC regulatory compliance. This is illustrated in our previous blog, citing a projected global RegTech spend of $115 billion in 2023.

The Potentialities of Technology-Based Automation Continue to Grow

The highly time consuming, resource intensive and inefficient processes of manual AML/KYC compliance have resulted in Asset Managers increasing their scope to automation. The ultimate goal is simple. By streamlining the investor onboarding screening process, Asset Managers can significantly reduce their exposure to AML/KYC burdens, reduce costs, increase speed to revenue, improve the CX, mitigate risks and most importantly, ensure that they remain fully compliant with their respective regulatory bodies. So how will automation achieve these goals?

Automation in the AML/KYC sphere is a somewhat broad discussion, not least because of the vast range of recent technical advancements. The likes of artificial intelligence (AI), robotic process automation (RPA), distributed ledger technology, machine learning (ML) and even the internet of things (IOT) will potentially all have a role to play.

For example, an automated AML/KYC protocol can effectively monitor dynamic regulatory systems that differ on a jurisdiction-by-jurisdiction basis. Not only does this alleviate the risks of manual error, but the technology is able to continuously monitor and scrutinize investor information in ever-changing market conditions.

Preparing for Automation: Walk Before You Can Run

The Fenergo community of financial institutions have indicated that artificial intelligence (AI) is key to future automation. However, it is essential to introduce a foundation of standardized processing and fully reconfigured workflows prior to implementing technology such as AI, RPA and machine learning.

It is also important to note that in order to avoid regulatory issues further down the line, Asset Managers are best placed to initiate the vast bulk of the KYC process during the onboarding stage. By allowing digital automation to achieve these goals, Asset Managers can perform a range of otherwise laborious tasks in a holistic manner, including but not limited to the collection of client data, the building of client profiles and the usage of risk scorecards.

Consistent, Automated AML & KYC Monitoring is the Key Benefit

By installing an automated regulatory technology (RegTech) organizations can ensure that internal policies are fully in-line with constantly changing regulations - something that is key in an Asset Management industry that operates in multiple jurisdictions.

London-based think tank JWG estimated that by the end of 2020 financial regulations will surpass 300 million pages, meaning Asset Managers are faced with an insurmountable task that is not only complex, but potentially contradictory too.

This is especially pertinent in the AML sphere, not least because there is no singular framework that applies transnationally. Whilst AML and terrorist financing standard-setters the Financial Action Task Force have seen their list of legislative recommendations mirrored in over 180 jurisdictions, including that of five individual European Union Directives, there are still disparities in the underlying regulations on a country-by-country basis. 

 

It’s clear Asset Managers show a strong desire to innovate with RegTech. Investing in RegTech and new technologies allows their focus to change from laborious manual processes to providing an excellent client experience and boosting time to revenue.

To find out more about how Fenergo provides Digital Transformation & Client Lifecycle Management solutions for Asset Management visit our segment page.

 

 

Automation in the AML/KYC sphere is a somewhat broad discussion, not least because of the vast range of recent technical advancements. The likes of artificial intelligence (AI), robotic process automation (RPA), distributed ledger technology, machine learning (ML) and even the internet of things (IOT) will potentially all have a role to play.

For example, an automated AML/KYC protocol can effectively monitor dynamic regulatory systems that differ on a jurisdiction-by-jurisdiction basis. Not only does this alleviate the risks of manual error, but the technology is able to continuously monitor and scrutinize investor information in ever-changing market conditions.

 

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