Embedding KYC/AML Compliance into an Outstanding Onboarding Experience

When it comes to complying with complex and labor-intensive know your customer (KYC) and anti-money laundering (AML) requirements, financial institutions (FIs) are stuck between a rock and a hard place.

On one side, compliance lapses have cost U.S. FIs billions in fines and penalties. On the other, the seemingly endless series of intrusive questions new applicants are forced to answer creates an awful first impression. Within the broader context of a clunky and disjointed digital experience, it’s no wonder abandonment rates for new account opening and customer onboarding are so high.

There have been 198 fines against financial institutions for AML, KYC, data privacy and MiFID deficiencies, representing a 141 percent increase since 2019. And according to Jim Marous of Digital Banking Report, “the abandonment rate for online account opening is 19%.”

What factors drive these concerning rates of abandonment? Research shows that customers begin to jump ship when an application takes more than five minutes to complete. Yet, 75% of institutions report it takes longer than five minutes to open an account, with nearly 30% taking longer than 10 minutes.

Speeding up the time it takes to open an account online is a great place to start. But, before you can begin improving your customer onboarding experience, let’s explore what KYC/AML compliance actually is.

What is KYC/AML?

While closely related, there are some key differences between AML and KYC compliance requirements. KYC refers specifically to the steps institutions must take to verify their customers' identities, while AML references a broader set of requirements designed to prevent financial crimes like money laundering and terrorism financing. Financial institutions use AML and KYC compliance to help maintain the security and integrity of their organizations and the financial system as a whole.

In short, KYC processes allow firms to take a risk-based approach to AML compliance that focuses on understanding who their customers are, and what level of money laundering risk they present. While every institution may structure their KYC process differently, core components of the KYC process involve collecting proof of customer identity and proof of address.

In those situations where a customer’s profile represents a particularly high risk of money laundering, institutions may be required to gather additional information in a process known as “enhanced due diligence” (EDD). Depending on the situation, these steps may include:

  • Collecting additional proof of identification and documentation;
  • Verifying the source of the individual’s funds;
  • Scrutinizing the purpose of transactions or the nature of business relationships more closely; and
  • Implementing ongoing monitoring procedures.

Financial institutions face challenges in managing KYC/AML compliance

Although on the surface KYC compliance seems fairly straightforward, in practice it can be very cumbersome. The problem arises from the fact that the FI must perform a series of steps ranging from collecting customer information, physically verifying proof of identification, performing credit checks, screening against government lists like the Office of Foreign Assets Control (OFAC) and obtaining a wet signature. The vast majority of institutions perform most or all of these steps manually.

This is a time-consuming and inefficient approach rife with the potential for human error. At best, this makes for a poor customer experience, and at worst, it can lead to the misreporting of essential data to the government. If not done properly, KYC/AML compliance lapses can have a significant impact on the bank’s bottom line. Between 2008-2018, U.S. regulators assessed $26 billion in fines and penalties as a result of KYC non-compliance.

On top of all this, authentication of signatures and verification of customer identity in the digital realm are a real and growing challenge. Many institutions try to avoid this by forcing their customers to finish the last mile of their account opening journey by physically visiting a branch or notary. But that is a recipe for frustration and high rates of abandonment.

These challenges are amplified for smaller institutions like community banks and credit unions. They don’t benefit from robust technology budgets, large staff and other resources to improve the front-end experience and back-office efficiencies. Such organizations are in particular need of solutions that are easy to implement and maintain while meeting critical data security standards and regulatory requirements.

Pursuing a seamless, fully compliant onboarding solution

Fortunately, advanced digital solutions have recently arrived on the scene that offer financial institutions of all sizes the ability to reduce their compliance burden, improve the experience for their customers and make collecting required KYC information a breeze!

Through digital solutions, the information-gathering process doesn’t need to be a wild goose chase. Customer-specific information gathering means that applicants only need to fill out fields relevant to them based on their unique risk profile. It eliminates the need for the bank to request irrelevant, excessive or intrusive personal information that isn’t required, reducing the time and amount of data gathered at onboarding significantly. It also provides customers and employees with a smooth, frictionless and highly intuitive account opening process.

Another critical compliance step in the KYC process is customer identity verification. It’s impossible to know your customer without seeing verifiable proof of their identity. Fortunately, modern ID Verification solutions offer fully secure, legally admissible verification embedded right within the eSignature process. With this powerful, integrated functionality, the customer no longer needs to visit the branch or a notary in person to show physical identification. Instead, they can verify their identity by providing answers to knowledge-based questions or scanning and uploading government-issued ID documents right from their mobile device or computer.

By integrating the identity proofing process upstream into the signing process, financial institutions can expedite processes such as new account opening, policy sales, or client onboarding with a touchless experience. For scenarios where notarization is preferred, DocuSign Notary further offers your notaries public the tools they need to conduct remote online notarization transactions.

Lastly, digital audit trails that are part and parcel with advanced end-to-end eSignature and agreement platforms like DocuSign introduce enhanced confidence and security to the account opening process. In fact, electronic signatures with a built-in audit trail are holding up as admissible evidence, oftentimes better than traditional wet signatures on contracts.

Marrying KYC compliance with a better customer experience

Today, a growing number of financial institutions are offering their customers a more efficient and intuitive account opening experience. By embedding KYC/AML compliance seamlessly into the onboarding workflow, digital account opening is happening in less time, at a lower cost and with less manual effort from both the applicant and banking staff. A fully digital process also means a reduced risk of regulatory fines and findings, and with a higher degree of data security and protection as compared with traditional, in-person account opening.

Moreover, these institutions are proving that a frictionless, efficient and (dare we say?) pleasant customer experience can be achieved alongside better compliance. Remember that KYC is not simply another compliance box to check, but an opportunity to build a competitive, differentiated customer experience that will exceed all your market’s expectations.

Learn how DocuSign can help you begin your digital onboarding journey while fully meeting KYC/AML compliance requirements.

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Manas Baba
Financial Services Industry Expert