Customer Due Diligence: How can compliance improve?

Customer Due Diligence: How can compliance...Banks rely on comprehensive Customer Due Diligence (CDD) processes to ensure they have the best chance of mitigating fraud and money-laundering risks.


Compliance officers are one of the first lines of defence in the fight against these threats, and institutions face stiff penalties from the Financial Conduct Authority (FCA) if they fail to tackle criminals.


Earlier this year, the FCA fined Deutsche Bank more than £163 million for serious anti-money laundering (AML) controls failings between January 1st 2012 and December 31st 2015. This was the largest fine of its kind in the FCA’s history, including its predecessor the Financial Services Authority.


“We have repeatedly told firms how to comply with our AML requirements and the failings of Deutsche Bank are simply unacceptable,” said Mark Steward, director of enforcement and market oversight at the FCA.


The regulator’s no-nonsense approach means compliance departments face considerable pressure to evolve and keep pace with increasingly sophisticated criminals.


A recent Dun & Bradstreet (D&B) survey highlighted the CDD areas where compliance officers are struggling, as well as some of the solutions that organisations are considering to improve performance.

CDD challenges

The D&B research showed around 40 per cent of financial professionals use the three lines of defence risk management model. This is helping them to bring more structure and cohesion to corporate governance functions.


However, D&B said few organisations appear to be enhancing their CDD sophistication as a result. This is creating various challenges for compliance officers.


Lack of automation: Approximately 14 per cent of businesses centralise and manually process customer applications, with only seven per cent taking practical steps to automate procedures.


While 100 per cent of respondents said they were exploring third-party tools in order to automate areas of the business, it seems implementation is still lagging behind.


Resource drain: Manually processing applications means considerable time and human resources are diverted from other growth-oriented tasks towards CDD.


Organisations could make considerable cost savings if they streamlined their current processes and moved skilled compliance officers into other, more profitable areas.


Data quality: Another knock-on effect of manual CDD procedures is that organisations face the risk of dealing with data that could be misinterpreted, had decayed or was inaccurate originally.


This problem is exacerbated when data is stored across disparate systems and networks. As datasets continue to grow, organisations must find ways of better handling and processing the information stored across their operations.


Customer expectations: Today’s consumers expect to be on-boarded with financial service providers quickly and painlessly, so delays while organisations track down information and confirm documentation can be problematic.


Businesses must perform a delicate balancing act between efficiency in processing applications and protecting against fraud. Compliance professionals often find themselves interacting with customers at the beginning of the consumer journey, and hold-ups can create a lasting negative impression.


Risk profiling: The D&B survey revealed that respondents found it difficult to identify whether existing or potential customers posed regulatory risks. Fifty-five per cent of businesses ‘sometimes’ used risk propensity scorecards based on data modelling when bringing new customers on board.


Meanwhile, the time taken to create reports often brought compliance teams into conflict with sales team, with 28 per cent of professionals claiming a report takes three to four days to compile.

Optimising CDD processes

CDD frameworks pose a number of hurdles for compliance officers, but pro-active departments can optimise processes while providing a smoother consumer journey.


Technology is a key component for optimising CDD, particularly with regards to automation. Respondents to the D&B research said automation would provide considerable benefits for their compliance officers, including faster times to revenue (60 per cent), reduced duplication (50 per cent) and cost savings (43 per cent).


FinTech and RegTech platforms are becoming increasingly useful in these areas, and the industry is expecting rapid growth over the coming years.


Many financial institutions still maintain scepticism towards using third-party data, however, which could be a major impediment to a more efficient future. Barely more than one-third (36 per cent) of organisations said external data was an integral part of their customer-screening activities.


That said, technology is not the only solution for improving CDD, despite wide industry support for innovative systems. D&B claimed that investment in new technology could be wasted if the CDD processes and data underpinning this development aren’t robust.


Furthermore, compliance teams must demonstrate the value that efficient CDD processes can provide. Creating a seamless onboarding process while maintaining the necessary regulatory scrutiny is difficult, but sales teams will quickly learn the benefits of optimising CDD when customer satisfaction levels rise.


Our 2017 Market Report combines our review of the prevailing conditions in the compliance recruitment market with the results of our latest employer survey. 


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