RiskTech Forum

Fenergo: The automation of Regulation around AML and KYC

Posted: 21 February 2019  |  Source: Fenergo


A Fenergo view on financial crime events in the asset management sector and how technology-based automation can help.

With a recent spate of large-scale Anti-Money laundering (AML) and Know-Your-Customer (KYC) enforcement actions, those within the Asset Management sector must now find the perfect balance between active regulatory adherence and delivering a positive end-to-end client experience (CX) in order to succeed going forward. 

Asset Management firms and other financial institutions are being scrutinized more by regulatory bodies with respect to AML/KYC compliance.   A recent report found that regulators over the past ten years have issued over $26 billion dollars in AML/KYC and sanctions-related fines (and rising).  This staggering number shows that related financial institutions had inadequate policy, processes, procedures and systems, in addition to poor governance and oversight in many cases.

Interestingly, a similar report found that the vast majority of these regulatory costs were associated with an AML/KYC-specific labor force. It comes as no surprise that asset managers are extremely keen to explore the continuous growth of automatic regulatory compliance surrounding the AML/KYC battleground.  Projected global RegTech spend is expected to reach $115 billion in 2023 (click here to read more).

The potentialities of technology-based automation continue to grow

The highly time consuming, resource intensive and inefficient processes of manual AML/KYC compliance have resulted in asset managers increasing their scope to automation. The ultimate goal is simple. By streamlining the investor onboarding screening process, asset managers can significantly reduce their exposure to AML/KYC burdens, reduce costs, increase speed to revenue, improve the CX, mitigate risks and, perhaps, most importantly, ensure that they remain fully compliant with their respective regulatory bodies. So how will automation achieve these goals?

Automation in the AML/KYC sphere is a somewhat broad discussion, not least because of the vast range of technical advancements that have recently been brought to the table. The likes of artificial intelligence (AI), robotic process automation (RPA), distributed ledger technology, machine learning (ML) and even the internet of things (IOT) will potentially all have a role to play.

For example, an automated AML/KYC protocol can effectively monitor dynamic regulatory systems that differ on a jurisdiction-by-jurisdiction basis. Not only does this alleviate the risks of manual error, but the technology is able to continuously monitor and scrutinize investor information in ever-changing market conditions (within varying parameters).

Whilst advanced systems can achieve these goals by analyzing millions of data points concurrently, highly-trained AML/KYC professionals are somewhat limited in scope, meaning that they can only dedicate resources to a finite number of accounts at any given time.

It is important to note that in order to avoid regulatory issues further down the line, asset managers are best placed to initiate the vast bulk of the KYC process during the onboarding stage. By allowing digital automation to achieve these goals, asset managers can perform a range of otherwise laborious tasks in a holistic manner, including but not limited to the collection of client data, the building of client profiles and the usage of risk scorecards.

However, the fundamental benefit that asset managers can take away from the automation of AML/KYC processes is constant monitoring in an autonomous manner.

For example, by installing an automated regulatory technology (RegTech) organizations can ensure that internal policies are fully in-line with constantly changing regulations - something that is key in an Asset Management industry that operates in a somewhat border-less manner.

Moreover, with London-based think tank JWG estimating that by the end of 2020 financial regulations will surpass 300 million pages, asset managers are faced with an insurmountable task that is not only complex, but potentially contradictory too.

This is especially pertinent in the AML sphere, not least because there is no singular framework that applies transnationally. Whilst AML and terrorist financing standard-setters the Financial Action Task Force (FATF) have seen their list of legislative recommendations mirrored in over 180 jurisdictions, including that of five individual European Union Directives, there are still disparities in the underlying regulations on a country-by-country basis. 

Therefore, by allowing RegTech to automate the KYC application process, not only can asset managers save thousands of hours of repetitive and often grueling work, but essentially, they can instead focus on tasks that generate profit, such as onboarding more clients.

Whilst there can be no denying that automation of KYC/AML compliance will ultimately enable asset managers to concentrate on more productive and profitable tasks, human input will still be necessary when red flags are identified by the system.

It’s clear asset managers show a strong desire to innovate with RegTech. Investing in RegTech and new technologies allows them focus to change from laborious manual processes to providing an excellent client experience and boosting time to revenue.

Kevin O'Neill, Global Head of Buy-Side Division, Fenergo

Kevin O’Neill joined Fenergo as the Global Head of its Buy-side Division in June 2018.  Kevin has a successful and proven track record as an institutional business development executive that spans more than 25 years.  He has driven new revenue growth across various Asset Servicing, Asset Management and Wealth Management businesses. Kevin was formerly Head of the U.S. Asset Manager segment for Royal Bank of Canada’s Investor & Treasury Services (RBC) where he was responsible for the growth of business with a focus on U.S. Asset Managers, Financial Institutions, Private Equity & Real Estate Managers. Prior to that role, he was RBC’s Head of the Sovereign Wealth Fund (SWF) & Central Bank business segment, covering the largest institutional investors in Asia, the Middle East, Latin America and Europe.

Kevin joined RBC I&TS from Mellon Financial Corporation (MFC) in which he was responsible for marketing MFC’s offshore Fund Services to major global Asset Managers. Prior to joining Mellon, he worked at Bank of Ireland Asset Management (BIAM) in Ireland and the US with a focus on Private Banking & Asset Management business development activities.

Kevin holds a Bachelor of Arts Degree in Financial Services (Honours) from University College Dublin and has numerous relevant diplomas from the Institute of Bankers, Ireland. Kevin is also a Certified Investment Fund Director (The Institute of Banking).