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March 22, 2023

Banks must better balance compliance with customer outreach

In an increasingly challenging regulatory landscape, banks must ensure that compliance does not negatively impact the customer experience. Hexaware’s Sandeep Kumar discusses why firms must embrace automation and new digital tools if they are to fix a broken customer outreach function.

Within a number of financial firms’ know-your-customer (KYC) functions, client outreach is at or beyond the breaking point. 

Leveraging KYC automation creates a standardised approach to customer outreach. (Photo by PopTika/Shutterstock)

Complying with anti-money laundering (AML) requirements without negatively impacting the customer experience is becoming an increasingly challenging balance to strike using traditional methods and tools. With adherence to stringent regulations a non-negotiable – and, in turn, creating significantly more outreach burden – relationship management is all too often playing second fiddle to information-gathering. Those enterprises that continue to rely on traditional collaboration tools and manual processes find both aspects suffering. 

“A reliance on manual processes in KYC is a longstanding issue,” acknowledges Sandeep Kumar, Hexaware’s global business head for BFSI BPS. “But that challenge is being significantly aggravated by a changing regulatory landscape. Where regulators might previously have been somewhat more lenient, they’re now coming down far more heavily on banks in regard to ensuring they’re KYC compliant.”

While banks must acknowledge the cost of not being aligned with KYC requirements, customers are unlikely to share this sense of urgency. The bank’s own relationship managers, traditionally responsible for direct client communication, are also unlikely to see meeting these requirements as the key metric upon which their own success is defined. However, the sheer volume of information required – and the pressure to gather it at speed – means that in many cases they are either pulled into carrying this burden, or acquiescing to operations teams reaching out to customers directly.    

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“The way most big institutions are structured, they have a compliance team which mandates what needs to be done and an operations team responsible for executing those requirements,” Kumar explains. “The relationship team is then responsible for ensuring the customer experience is not impacted in this pursuit.”

“They must all be tightly knitted together, avoiding duplicate requests for info and seeing that all efforts have been made to source information prior to reaching out to the client. But as volumes grow, that requires a level of visibility and collaborative tools many do not possess, and relationship teams often don’t have the bandwidth to conduct all outreach themselves. If that work is outsourced to operations, they are unlikely to have the same sensitivity or skills.”

The best use of KYC resources

Ultimately, client outreach should be a last resort, necessary only once all other avenues of information collection have been exhausted. Optimising those independent information-gathering processes is essential, but most firms still rely on time-consuming manual data collection techniques. As more information is required, there is also a considerable skills gap in regard to those tasked with conducting such work reliably, meaning findings will be increasingly prone to errors. 

If it does become necessary to contact the client, this process is still predominantly conducted manually, through the use of non-standardised email requests, forms and calls. These chains of communication are also logged and tracked manually, increasing the chances of missed responses and duplicate requests. Completing requirements quickly becomes an unwieldy process that makes excessive demands of customer time and input. With all of this information being tracked in spreadsheets, changes in circumstances or responses that create new requirements are unlikely to be flagged automatically.

The answer, Kumar argues, is to give all parties – client and banks alike – better tools with which to manage this process, adopting a digital strategy that empowers both effective engagements and strengthens compliance capabilities. He acknowledges that resources have been targeted towards this challenge in recent years, but does not necessarily see investment going into the right areas. 

“A common response has simply been to put in more bodies,” says Kumar. “Where previously banks had a KYC team of 50, now they have 200. The issue here is that they are still using the same methods, only on a much larger scale. More people is not the answer; you need to create a more controlled, auditable environment, harness automation, and create a flexible experience that allows customers to communicate with the bank through the channel they feel most comfortable with. 

“For those customers keen to use digital tools, you must provide them. For those that do not, the bank must leverage digital tools to ensure the customer experience is in no way impacted while the bank is still able to ensure enhanced governance.”        

Hexaware has developed a suite of tools that help deliver these capabilities, while at the same time underwriting the responsibility for transformation throughout the entire KYC journey. Across the overall KYC operation, such an approach typically delivers a 30% reduction in TCO. 

Acquiring the KYC tools

With regard to customer correspondence, these tools enable the auto-creation of data collection, automate outbound communications, and facilitate automated event-based triggers. Correspondences can be auto-indexed and automatically assessed, providing a process audit trail that tracks progress and flags escalations. Leveraging automation creates a standardised approach to customer outreach, ensuring consistency while, at the same time, lessening the workload for stretched operations and relationship teams. A centralised dashboard collates all info and allows for real-time visibility. 

“It lowers the cost of operations, increases compliance and reduces disruption to customers,” Kumar explains. “Having that level of visibility, so that you know exactly what has been requested so far, what has been received, and what is required is something banks struggle with hugely right now. Without having information and processes digitised, you are never going to make the best use of resources and it doesn’t work for anybody.

“Most firms have already invested in some form of KYC technology and now they feel stuck with it. We are not looking to disassemble that but to provide tools that incrementally enhance – and remove the burden of having to build again from scratch. There’s no single tool that can solve the entire KYC puzzle and outreach is an aspect that often gets neglected. Getting this part right will ultimately lead to better compliance and happier customers.” 

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