KYC Compliance: Optimising AI to Ease KYC Compliance

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KYC Compliance: The innovation in technology has led to wonders in the world of finance and banking. With the positives, one must always prepare for the negatives as well. Money laundering, terrorism financing, tax evasion, etc. are some of the many negatives that are benefiting from the advancement in financial technology.

To combat these issues, Artificial Intelligence and Machine Learning come in the picture. Although these technologies have been around for quite some time, in the world of financial services they are relatively new. Banks and financial institutions are always under extreme regulatory pressure to implement increasingly rigorous regulations to mitigate criminal financial activities.

How Does KYC Come In The Picture?

Know Your Customer (KYC) is a process through which banks and financial institutions identify their clients and evaluate any potential risks or malicious intent that might not be in accordance with the laws of the jurisdiction or might be hazardous to the company’s prestige and reliability.

The process of KYC identity verification is quite tedious and laborious without the integration of AI. Currently, a number of banks and institutions rely on the part-automated and part-manual process to go through stacks of data to watch for suspicious identities, transactions and to ensure compliance to regulations. AI and ML technologies offer a more efficient approach to enhance the banks’ monitoring and compliance capabilities.

Facilitating KYC Checks with AI and ML

Financial institutions and the overall financial services industry plays a central role in the governments’ efforts to mitigate fraud and eliminate the infusion and circulation of illegal money into formal financial systems. This is why banks and financial institutions are constantly on the treadmill of improving their systems and processes to monitor and comply with the emergent and stricter regulations. At the same time, fraudsters keep on trying even more groundbreaking ways to circumvent the checks.

A report from Lexis Nexis reported that the majority of businesses reported slower processing. And lesser productivity for businesses with the current semi-automated nature of the KYC identity verification process. It is a necessity for banks. And financial institutions to have mandatory KYC Compliance, otherwise, they would be facing punitive penalties.

More Secure And Rapid Results

To perform thorough KYB checks, banks employ a significant number of operations personnel trained in monitoring transactions, plucking out possibly suspicious ones and going through each one to decide if they are false positives or indeed dubious transactions. When banks employ AI and ML, “intelligent automation” can be employed that can learn the mechanisms of monitoring transactions, verifying identities and authenticating clients.

The Impact of Digital KYC Compliance

There are enormous advantages of integrating AI and ML in KYC Compliance identity verification processes. Firstly, they enhance the overall quality of transaction monitoring and compliance. This is because they can observe and go through large volumes of structured. And unstructured data and carry out analysis of transactions to identify potentially suspicious ones. And grade them as low, medium or high-risk categories all in real-time.

Since one of the biggest challenges in a manual process is the human fatigue factor. This is alleviated through the use of automation. AI and ML solutions can learn to recognize newer patterns of likely questionable transactions through constant learning. Both supervised and unsupervised.

KYC Compliance operations in banks

Eventually, the major effect on banks will be to lessen the overall number of people employed in KYC operations in banks. This is not only cost-effective but also lets the banks redeploy those staff into more creative problem-solving roles.

AI and ML allow financial institutions to reduce their risk exposure to penalties and damages from regulators. The time is now for banks and financial institutions to step up. And incorporate these advanced technologies to not only combat financial crimes but also enhance the customer experience.