New Study by Protiviti and International RegTech Association Sets Out Blueprint for Much Needed Digital Optimization of ‘Know Your Customer’ Processes

Global study identifies roadblocks and way forward for financial industry to transform critical Know Your Customer processes to benefit customers, fight financial crime and reduce regulatory burden

MENLO PARK, Calif., November 14, 2019 - Protiviti and the International RegTech Association (IRTA) have released the findings of a global market study they conducted to investigate the effectiveness of current ‘Know Your Customer’(KYC) processes. The study reveals an urgent need for more effective industry alignment to accelerate the digitizing of KYC processes and greater use of shared platforms. KYC processes involve the identification and verification of customers and help protect financial institutions’ services from being misused for illegal activities.

The joint study included interviews with regulators, financial institutions and technology service providers across multiple international jurisdictions in leading financial centers as well as emerging markets. The purpose was to identify a roadmap for improving costly and ineffective manual KYC processes that are sub-optimal for financial institutions and often lead to a poor customer experience for their clients and hinder financial inclusion. The study’s report also provides strategic recommendations tailored for each stakeholder group on how to transform current KYC processes.

The study concluded that key roadblocks to KYC innovation include:

• Inconsistent governmental and regulatory support for digitization efforts 
• Difficulty in developing effective operational and commercial models for digital-enabled shared platforms
• Concern over data strategy and integrating legacy systems with new digital solutions
• Conflict between KYC and data privacy requirements that can prevent data sharing 

Shared platforms, consisting of a centralized, de-centralized or distributed database that can be used to share KYC data within a financial institution and across multiple institutions, can reduce redundancies in KYC processes and improve customer experience.

“Today’s inefficient and ineffective manual KYC processes are onerous and costly,” said Shubhendu Mukherjee, a director in Protiviti’s Risk and Compliance practice. “By getting the key stakeholders to collaborate, we can develop and adopt digital solutions and shared platforms based on consistent regulatory and data standards. It’s critical to make this a standard practice across the financial services industry.”

According to the report, key enablers of digitally optimized KYC processes include the use of new technologies, such as artificial intelligence, machine learning and distributed ledger technology, to reduce the time and cost of KYC operations. The financial industry also needs to utilize shared KYC platforms to eliminate redundancies in processes and improve customer experience. 

“It is essential for policymakers, regulators, institutions and solution providers to align on their understanding of how digital-enabled KYC can transform outcomes for people and businesses,” said Richard Maton, executive board member for the IRTA. “A shared understanding of the significant risks of continuing to rely on legacy approaches is equally important. Our recommendations provide a blueprint for broader RegTech adoption that enables better regulatory compliance and improves the efficiency and effectiveness of compliance processes.”

Report Offers Recommendations

The Protiviti-IRTA report includes recommendations for key stakeholders and platform providers that lay out how existing policy frameworks and mechanisms can be leveraged to drive the understanding, testing and adoption of KYC optimization, such as:

• Consistent regulatory standards and mandating the development of common data models to support KYC optimization
• Regulators to be actively technology-informed, developing views on the regulatory effectiveness of specific technologies without endorsing actual vendors
• Best practices for the development of shared platforms and standards for data sharing 
• Co-creation of industry assets such as data trusts, typology banks and open IP from regulatory tech-sprints and proofs of concepts 

About the KYC Study

The Protiviti/IRTA KYC innovation study, conducted from May through August of 2019, targeted leading financial centers and developing markets that are at various stages of KYC optimization. Extensive interviews were conducted with government and regulatory agencies, financial institutions, KYC digital solution and shared platform providers, as well as innovators and thought leaders. The study also relied on a wide range of official documents, such as corporate announcements, regulatory filings and reports on digital initiatives. 

About IRTA

The International RegTech Association (IRTA) is a united community of individuals and organizations, with a shared vision to innovate, advance, and influence the future of Regulatory Technology (RegTech). Through consultation and collaboration, the IRTA plays a central role in shaping the future of the Financial Services industry. A non-profit Association, the IRTA brings together the people, tools and policies that are required to thrive in today's rapidly evolving RegTech landscape.