Long reads

Financial services businesses must stop putting Customer Due Diligence on the backburner

Simon Mansell

Simon Mansell

UK forensic head of Customer Due Diligence, KPMG

Financial crime challenges even the most diligent of organisations. During the Covid-19 pandemic, fraud proliferated in the UK, with professional criminals targeting the public amid Covid-19 disruption to the tune of £37 million in 2021, up 80% from £20.5 million in the same period in 2020.

Professional and financial services firms have an obligation to protect both consumers and their own companies from fraud and have several powerful tools in their arsenal to do so, one of which is undertaking Customer due diligence (CDD).

CDD is a process of checks to help identify customers and make sure they are who they say they are. Organisations are in a much better position to identify money laundering if they know who their customers are and understand the reasonings behind their behaviour.

During the pandemic, many financial organisations such as banks, paused their CDD programmes as they focused on administering mortgage payment holidays and processing government support loans. Although we aren’t out of the woods of the pandemic just yet, many businesses are now focused on their recovery and business growth. As businesses recover, their risk exposure will undoubtedly intensify as they seek to enter new markets and attract more customers. With increasing uncertainty and regulatory oversight in global economic markets, it is time for financial services firms to stop putting their Customer Due Diligence programmes on the backburner and invest in them.

Technology in the CDD process varies from organisation to organisation. There are a variety of tools and systems available to businesses, ranging from simplistic tools which address specific components of CDD to advanced platforms which automate and fully optimise the end-to-end process.

Using outdated systems can make carrying out CDD complex and cumbersome. Tasks are too often managed by resource-heavy middle and back-office functions which have little to no communication with the sales or customer relationship teams who interact with customers. Whilst manual transferring of information from one system to another can result in human error and longer case handling times.   

Over the last few years, sophisticated screening tools that use machine learning and AI to analyse potential sanctions and politically exposed person matches are increasingly playing a role in streamlining CDD processes. AI and machine learning processes have the benefit of improved accuracy and consistency when auto-decisioning matches for obvious false positives, allowing CDD teams to focus their attention on the matches that really matter. Firms are also increasingly investing in AI and machine to not only help build an accurate picture of their customer, but to provide data insights and uncover new trends and tactics that may be deployed by criminals to launder money.

KPMG UK has recently launched an innovative cloud-based platform – KPMG Smart CDD2 - that optimises and runs clients’ CDD operations as a managed service to reduce the cost of know your customer compliance checks. The tool addresses Due Diligence checks holistically and uses third-party integration to bring in customer data as standard. 

Financial crime is a multi-faceted creature which organisations won’t eradicate with half-hearted measures. A modern CDD programme is a vital tool with which organisations can fight crime, simplify compliance and drive efficiency through automation.

Comments: (1)

Andrew Smith
Andrew Smith - RTGS & ClearBank - London 22 March, 2022, 18:23Be the first to give this comment the thumbs up 0 likes

I totally agree with this post. 

What I would add is, technology as its role to play, and CDD needs itself to be looked at. Banks are not the custodians of an individuals personal data, or a corproates data, the person or corporate owns that. CDD is therefore all about risk, not the underlying datagathering. 

I strongly believe that true digital identity solves most of these challenges for banks, it significantly improves KYC accuracy and removes many of the cumbersome steps that we aassociate with KYC. It also aids compliance, especially around GDPR and ultimately delivers a significant improvement in customer experiences our outcomes.

The banks that adopt digital identity and embrace it early, will reap the rewards with their ability to attract new customers, but to also ensure they reduce associated risk and significantly improve their compliance....That's before we mention ongoing CDD, which digital identity solves totally for banks too...