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KYC- RISK BASED APPROACH IMPLEMENTATION

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KYC- RISK BASED APPROACH IMPLEMENTATION

Introduction

Compliance and regulatory reforms are always at the center stage in the financial domain. Banks, brokerage houses, regulatory bodies across the world are key stakeholders in terms of complying them. The role of technology is by no means a small factor in the ecosystem. For example FATCA initiative, AML regulatory norms are critical initiatives which are to be mandatorily implemented. They heavily impact the IT Landscape and workflow architecture of the existing core banking systems.

This paper aims to identify current gaps in existing KYC systems and the need for a new system which is built on “Risk based Approach” by adhering to Global regulatory norms. Also the implementation challenges which majority of Core banking platforms face are discussed with alternatives.

Overview of existing KYC systems

KYC (Know Your Customer) policies are made mandatory to any financial institution across the world by regulatory bodies. Various laws like US Patriot Act, Bank Secrecy Act, and Prevention of Money laundering Act help define the processes and scope for IT systems to meet the requirements. Below are the few gaps in existing KYC system

  • Current systems segment customer at a very high level based on few fixed variables. This is a necessary but not sufficient methodology as it lacks in anticipating customer transactions and dynamic categorization of customers into coherent groups.
  • In majority of Banks and nonbanks, onboarding KYC systems and AML data bases are not integrated as there is no end to end feedback mechanism established
  • Factors like managing the material changes for the existing customers and the process of screening or periodic review to analyze the relationship with the customer which are not up to the mark

Future KYC – Risk Based Approach

sravan

sravan

A Future KYC is standard one stop solution for all the due diligence and money laundering requirements which is scalable and consistent. It supports varying risk weights parameterized for several factors across all the customer types- Individual, corporate, government, banks across the world.  This approach feed AML systems with predictive data and helps them set variables and parameters on this basis. Based on which the outliers will be identified. It helps to know customer better and reduce false positives at a later stage

Functional Implementation Approach

  1. Core Identification Program
  • Basic Customer Data– National ID, SSN , Passport
  • Documentary collection and verification
  • Identify Customer type and segmentation
  1. Customer Due diligence
  • Demographic data management
  • Third party data – beneficiary, trustee, POA
  • KYC data – employment type, source of funds, Tax status
  • Risk calculation
  1. Enhanced Due diligence
  • Screening with OFAC, Local and other blacklists
  • Client location visit based on customer type, asset under management
  • Risk assignment , approval management

The solution systems screen based on fuzzy logic, help preliminary auto screening for a customer before creation. Risk Decision engines are rule based logics built on variables which have parameterized weights on the basis of country and institution level regulations. Several variables for example- legal address country, source of wealth, job industry type, product transaction type and estimated transactions, etc., are assigned risk scores based on several parameters. The sum weighted average score helps the system identify the customer and segregate into Low or Medium or High risk.  Also the approval workflows algorithms are based on risk level of the customer.

The data from different vendors is fed to KYC platform. KYC system maintains each customer data in the form of records at Customer level, Account level or a universal dataset which enables to extract and create flat files based on the focus type. Post this several stakeholders with various roles are involved in approving the record on the basis of risk rating. An Alert Generation process actively sends reminders to corresponding stakeholders for timely approvals and review of the records. KYC continuously engages with Document repository for customer data storage. Also it periodically sends and receives data to Data Ware House for monitoring, Case management for compliance and Business reposting data bases.

Implementation Challenges

A successful roll over of such a critical and complex requirement needs in depth Requirement analysis, to support development and testing for an appropriate deployment model. Accordingly below are the challenges to be addressed

  • Majority of Global banks’ core banking systems are built on tightly coupled Service Oriented Architecture. Building the architecture to meet the enhanced Risk Management Approach touching upon existing systems without affecting the original work flows is a challenge
  • Data Migration and integrity – Uplifting existing KYC records to the new standards without affecting the day to day activities of business by meticulous planning and addressing the data quality issues from several platforms.
  • Mapping of data elements from several sources to the solution system variables to carry equal sanctity and properties
  • Data Privacy issues adding complexities to an Onsite-Offshore model of operation.
  • Training – Compliance, Operations and Business Users will need to be trained on standard policies, procedures and operating model before enabling new platform

The core implementation approach can be in 2 phases

  • For New To Bank customers- Any Consumer, Corporate, correspondent bank or Government Institution etc opening an account with the bank for the first time needs to undergo the process mentioned above. Only then the Account will be created and a Relationship will be assigned based on Risk level
  • Existing Customer – A default risk is assigned on the basis of few parameters like Negative news check, sanction country flag, occupation and industry code. At a later stage a consistent periodic review will be performed in a phased manner and manual uplifting will be done. Also the true beneficial owner details are collected in this phase

Conclusion

Since majority of banks and financial institutions across the globe are looking out to comply with Global AML policies, they have to work for an enhanced risk management approach. This is in the interest of protecting the institutions from regulatory, fraud, legal, monetary risks.  As discussed the solution developed and rolled over must be scalable for any future regulatory and functional enhancements.

About the Author

Sravan is an Associate Consultant working with Maveric Systems. In the past 2 years he predominantly worked in Regulatory and Compliance domain (KYC AML FATCA) for global retail banking clients.

He has over 58 months of experience in Waterfall and Agile SDLC models across Requirement analysis and gathering, User story building, Use Case modeling, Business process mapping and the development of test scenarios.

Prior to joining Maveric Systems he pursued his Masters in Business Administration from Narsee Monjee Institute of Management Studies, Mumbai.

ABOUT MAVERIC SYSTEMS

Maveric Systems is a leading provider of IT Lifecycle Assurance services across the technology adoption lifecycle. Maveric partners clients from requirements to release with innovative IP-led solutions. The company’s Requirements Assurance, Application Assurance and Program Assurance services are aimed at delivering successful outcomes on transformation programs for leading corporates in BFSI and telecom verticals. Maveric’s services are highly domain-led and this expertise is reflected in its superior solutions.

Over the last decade and more, Maveric has supported a large number of clients through their transformation programs involving implementation of core business systems, CRM systems, payment systems, billing systems and other sub-systems. Maveric delivers successful outcomes on transformation programs for leading corporates through its immense domain expertise, superior knowledge of industry-standard solutions, innovative testing productivity accelerators and relentless passion.

With its background of bringing innovative solutions to solve client problems Maveric has developed a first- of-its- kind automated specification generating platform, AssureHawkTM. This solution uses readily available skills, doing away with the need for specialized product expertise, business knowledge and specification writing skills.

Recognizing the need for building passionate Testing and Assurance professionals to cater the growing resource need, Maveric partnered with the Loyola Institute of Business Administration (LIBA), in 2004, to start a custom designed 2-year postgraduate program in Testing and Assurance. This program has been very successful in bringing fully rounded Assurance specialists into the system.

Headquartered in Chennai, Maveric has a dedicated global offshore delivery centre and R&D lab in the city. With a headcount of 1200, the company has offices in London, New Jersey, Dubai, Riyadh, Kuala Lumpur, Singapore, Mumbai and Bangalore.

Banking

New digital first bank – Monument – announces its key technology providers

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New digital first bank - Monument - announces its key technology providers 1
  • Monument selects Mambu, Salesforce, Amazon Web Services, Persistent Systems and Accenture as key providers for its technology build
  • Monument is the first challenger bank in the UK to service the unmet demands of more than 3.5 million mass affluent clients: professionals, property investors and entrepreneurs
  • It is building a modern, unique, lego-like technology platform which takes best of breed SaaS providers and integrates them in a cloud based microservices architecture

  • This will deliver an exceptional client experience and enable Monument to innovate and to introduce new components on a frequent basis
  • Monument today announces that Mambu will be the central core banking engine in the platform alongside Salesforce for CRM, and AWS for cloud services
  • Monument has also engaged Persistent Systems and Accenture Interactive to support the platform build

Following receipt of its banking licence with restriction on 6 October 2020, Monument has now signed agreements with a number of key technology providers to enable the build of its bespoke technology platform.

Monument wants to deliver exceptional client experiences by using technology solutions that are modern, flexible, easy to integrate and ultimately, if necessary, able to be replaced should the need arise. The design of its lego-like technology platform is Monument’s solution to the huge challenges faced by the legacy systems of established banks. Having assessed the market over many months, Monument concluded that no appropriate single solution existed in the market for the products and services that Monument will launch in 2021.

In addition, Monument only wishes to develop its own technology where it can deliver significant competitive advantage, for example in the mobile and web services to be used by clients. Much of   the technology platform is therefore based on best of breed solutions from modern, cloud-based providers.

Mambu has developed the leading cloud banking engine which is an excellent fit for the platform that Monument is building.  Similarly, Salesforce provides an industry leading CRM (customer relationship management) solution which can easily be integrated with Mambu and other solutions. AWS, as a leading provider of cloud-based infrastructure, provides a range of components to ensure the platform is reliable, scalable, secure and flexible.

To support Monument in building and integrating a platform with more than 18 different components/providers, Monument has chosen to work with Persistent Systems, a leading global solutions provider specializing in digital with extensive experience in software as a service (SaaS) solutions. To support Monument in rapidly building its mobile app and web-based channels, Monument has chosen to work with Accenture Interactive, which has significant expertise in building innovative digital experiences in both the financial and non-financial sectors.

Steve Britain, Monument’s Chief Operating Officer said:

“We have been working closely with our chosen providers for some months now, to lay the foundations for the build of our platform. We are delighted at how much we have already achieved, particularly as much of the work has been done by a highly distributed team because of COVID-19.  We are now focused on completing the work to build a unique configuration of best in class software components that will make us highly flexible for the future and deliver market leading client service.”

More announcements will be made shortly as other key components of the architecture are confirmed.

Sudip Dasgupta, Monument’s Chief Technology Officer added:

“It was essential to me that we selected the strongest providers available. Those that offer us modern technology solutions with the best degree of integration that we need, together with flexibility for the future and proven operational reliability. In Mambu, Salesforce and AWS we have certainly achieved that objective and we are excited about our future engagement with them. Equally, as we rapidly build our platform for launching with clients in early 2021, we wanted support from providers  who have been on this journey before and in Persistent and Accenture Interactive, I am delighted to say we have found that.”

Monument will be the only bank to offer its clients an entirely digital journey for buy-to-let and property investment lending of up to £2million. It will offer market leading, top quartile savings rates and its model is designed to reward loyalty. So, if a saver deposits money for a subsequent fixed term, they will get a better rate than a new customer. And a borrower who renews their loan will also be offered a favourable rate.

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Banking

UKRSIBBANK, part of BNP Paribas Group, announces a strategic partnership with financial wellbeing startup Dreams, to enhance the digital user experience of its 2 million customers in Ukraine

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UKRSIBBANK, part of BNP Paribas Group, announces a strategic partnership with financial wellbeing startup Dreams, to enhance the digital user experience of its 2 million customers in Ukraine 2
  • The technology powering popular consumer app, Dreams – which has helped 460,000 users save over 440M EUR – will be made available to UKRSIBBANK’s users in Ukraine.
  • Through the integration of the Dreams platform within UKRSIBBANK’s own digital tools, customers of the bank can set and achieve money-saving goals, track and improve their financial lives.

Dreams (https://www.getdreams.com/en/b2b/), the Stockholm-born fintech empowering millennials to save and feel better about their money, today announces a strategic partnership with Ukrainian commercial bank UKRSIBBANK, a subsidiary of French international bank BNP Paribas Group.

This partnership follows the announcement earlier this year of Dreams’ first enterprise partnership with banking software provider Silverlake Symmetri, and the recent unveiling of a new department in Stockholm dedicated to the development of Dreams’ B2B partnerships. The announcement marks an expansion of the company’s business model as it consolidates its B2B offering and evolves its services as a provider of white label solutions for financial institutions.

Through the integration within UKRSIBBANK’s own digital tools of the Dreams Platform – which is rooted in scientific principles – customers can set and achieve money-saving goals through clever, automated saving features, in addition to nudges and saving hacks.

The Dreams Platform will be included as part of UKRSIBBANK’s digital banking offering for its 2 million+ customers, and is set to grant millions of potential consumers across Ukraine access to products which will help keep their finances on track and improve their financial lives.

The rise in digital self-help tools has long been anticipated by Dreams and forward-thinking financial institutions. The current global economic uncertainty brought about by the COVID-19 pandemic has also placed significant strains on people’s finances, and the demand for better personal finance tools has only accelerated. The partnership with Dreams is welcomed by UKRSIBBANK which is currently striving to equip its customers with the best possible banking solutions whilst helping them achieve a more sustainable lifestyle.

Dreams is firmly established as an authority in its industry, having launched its consumer-facing app in its native Sweden in 2016 and Norway in 2018 – where it has already achieved a 16% market share of all 20-39 year olds.

Henrik Rosvall, CEO and founder of Dreams, comments: “It’s a true honour to be partnering with UKRSIBBANK and BNP Paribas Group, and we’re incredibly excited to be introducing the Dreams solution to UKRSIBBANK’s customers and the wider Ukrainian market.

“Dreams and UKRSIBBANK can now lead the charge, with BNP Paribas Group’s corporate strategy having shifted in recent years to focus on guiding customers towards responsible consumption and sustainable personal finance management. I’m confident that our mission of helping millennials save more and feel better about their money makes us the ideal partners.

“Our financial wellbeing platform – which is built upon behavioural science and personal finance management principles – will provide the perfect tool for UKRSIBBANK to help its customers make better financial choices and become more sustainable in the way they handle their finances. This partnership will also help UKRSIBBANK safeguard the loyalty of its customers and futureproof its digital banking offering against a growing number of challenger banks and fintechs.”

Konstantin Lezhnin, Head of Retail at UKRSIBBANK BNP Paribas Group, comments: “I believe that banks have a role to improve their customers’ lives. Planning and saving for important life events improves our quality of life by reducing stress levels, and we wish to make our customers feel more confident and in-control of their lives.

“UKRSIBBANK has always applied innovative ways to assist our customers in financial planning, so we are very happy to now be working with Dreams, the best European player in behavioural savings. They have an extremely solid track record in Sweden and Norway based on scientific research, so we are confident that this partnership will work positively for our customers in Ukraine. This also demonstrates our strategy to cooperate with startups and innovative companies that seek ways to expand their operations.”

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Banking

Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society

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Three times as many SMEs are satisfied than dissatisfied with COVID-19 support from their bank or building society 3
  • More SMEs are satisfied (38%) than dissatisfied (13%) with their COVID-19 banking support
  • Decline in SMEs using personal current accounts for business banking as more seek access to the Government-backed lending scheme
  • Fewer SMEs believe nearby branches are important when choosing a bank or building society
  • 15% of SMEs use mobile or online banking more often than before the COVID-19 pandemic
  • When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account

Three times as many SMEs have been satisfied than dissatisfied with the COVID-19 support available from their bank or building society, according to YouGov research commissioned by the Current Account Switch Service.

Overall, four in ten SMEs (38%) were satisfied with the support they received from their business current account provider since the pandemic began. This contrasts with one in ten SMEs (13%) who were dissatisfied.  In general, more than half of SMEs (55%) are satisfied with their current business bank account, compared to 8% who are dissatisfied. However, inertia remains a problem as half of SMEs (50%) said they would not look to switch business accounts even if they were dissatisfied with their current bank or building society.

When SMEs do look to switch, low or no charges for business banking remains the most important factor (47%) in selecting a new account. Advanced digital features (35%), good interest rates (34%), and a personal connection through a relationship manager (33%) also mattered.

The SME banking research was conducted both in February and in September 2020. It also reveals that since the start of the pandemic, the proportion of SMEs using business current accounts has increased from 69% in February to 74% in September as firms are required to have a business account to receive access to the Government-backed lending schemes.

However, one in five SMEs (20%) still use a personal current account for their business banking needs, despite the risk that tax liabilities get confused, and calculations are made incorrectly. These businesses are also missing out on a range of business-only banking benefits such as integrated accounting software or invoicing tools offered by different providers.

In addition, the research shows the importance of branches to SMEs has declined over the seven months. When asked in February, more than a fifth of SMEs (22%) said the availability of nearby bank branches was important when selecting their bank or building society, compared to 17% in September.  However, the Post Office could be fulfilling the role of branches in some areas.

The declining importance of nearby branches was most noticeable in the North East region where 35% of SMEs believed branches were important in February, falling to 18% in September. The importance of nearby branches also varies between industries. One in ten IT companies (11%) said nearby branches were an important factor compared to nearly three in ten (29%) leisure and hospitality businesses.

While branches are less important, digital banking use has increased for some SMEs. Several firms have started to use online banking for the first time as 15% of SMEs say they use mobile or online banking more often than before the social distancing measures were introduced.

Maha El Dimachki, Chief Payments Officer of Pay.UK, owner and operator of the Current Account Switch Service, said: “Across the country, banks and building societies have been working hard in difficult circumstances to meet customer needs. Thanks to that work, small and medium-sized enterprises are more likely to say they are satisfied than dissatisfied with the support they received from their business account provider since the pandemic started. But lockdown has changed small business behaviour dramatically, in a way that points to significant changes to their banking needs both now and in future.

“It’s encouraging to see many small businesses are generally satisfied with their business bank accounts. However, even when businesses are unhappy with their bank, some don’t consider switching as an option, despite the many benefits available. We’ll continue to raise awareness of the benefits of switching among small businesses to help them get the most from their bank account.”

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