When banks and financial institutions take on new customers and clients, they must also consider a range of important regulatory requirements in order to detect and prevent potential money laundering activities. Given those requirements, client onboarding presents a range of challenges: firms must balance their compliance considerations with business factors, including budget, available resources and customer service needs. By integrating certain technology tools, firms can automate some or all of their AML client onboarding process and better manage compliance needs with their business priorities.
In order to get the most out of automation, firms should understand their responsibilities during onboarding and how technology could help to enhance the process as part of their wider AML/CFT program.
What is AML client onboarding?
Client onboarding is the beginning of the relationship between a financial services business and a customer. Onboarding is the point at which a firm must, according to AML/CFT regulations, collect a range of important information about their customers as part of the customer due diligence (CDD) and know your customer (KYC) process. By obtaining that identifying information, firms can establish that their customers are who they say they are and are being truthful about the nature of the business in which they are involved.
Practically, the onboarding process involves the following steps:
- Collecting and collating data and identification documents pertaining to a customer.
- Conducting background checks to verify customer-submitted data and establish beneficial ownership.
- Running historical checks to establish whether the customer has been involved in previous criminal activity, has sanctions placed against them or is a politically exposed person (PEP).
- Categorizing the customer as high- or low-risk for the purposes of ongoing AML screening and monitoring.
- Commencing the business relationship (if permissible) and applying appropriate AML transaction monitoring measures.
While onboarding is crucial to AML/CFT regulation and enforcement, it is equally important from a customer service perspective. It is the first practical contact many customers will have with the organization they have chosen to do business with and may influence their future decisions to continue using it. Accordingly, firms must consider the experience that customers have during onboarding and attempt to reduce or remove administrative friction by integrating technological tools and automating the process wherever possible.
Automation is so important during onboarding because it helps firms achieve both compliance and customer service objectives. Implemented effectively, automation has the following effects and benefits during onboarding:
One of the most significant applications of automated onboarding is to enhance compliance performance. Effective CDD and KYC at onboarding involve a range of mandated obligations, including the verification of customers against relevant official databases and lists. The process can be costly and time-consuming if performed manually, but software automation allows firms to not only add speed and efficiency but increase the amount of data that they are capable of handling safely. Onboarding software can be calibrated to suit different regulatory environments and adjusted quickly if the situation changes.
By automating onboarding compliance, firms can also enhance procedural accuracy and reduce the potential for human error by compliance teams. Administrative accuracy during onboarding is crucial to ongoing AML compliance: in addition to detecting money launderers, effective CDD helps to prevent firms from becoming complicit in, and penalized for, a money launderer’s criminal activities.
Speed and Simplicity
Software automation during onboarding reduces the time it takes to introduce new customers to a business and simplifies the administrative process. The benefits of accelerating onboarding are twofold: first, it allows firms to broaden customer access channels to their services without compromising compliance performance. Secondly, it helps firms maintain an effective level of customer service across those channels, reducing friction and helping to build a more robust foundation for ongoing customer relationships.
Beyond reducing onboarding time, automation can also simplify the administrative process associated with it, making AML easier for both compliance teams and for customers. Practically, customers may be able to engage with onboarding services online or via their mobile devices, while compliance teams can be focused or reassigned to priority AML concerns.
The AML onboarding process requires firms to collect and analyze a significant amount of CDD/KYC data. That data will be vital to the ongoing AML transaction monitoring and screening measures that must be applied throughout a business relationship with a customer. Software automation helps firms manage their data collection responsibilities during onboarding: data can be stored and accessed more efficiently and preserved more accurately for situations in which it is needed for the submission of suspicious activity reports (SARs) or for subsequent investigations by financial authorities.
Similarly, automated onboarding is better suited to a consolidated approach to data storage, in which all departments have access to a central repository of information and can share information more easily. Data consolidation allows firms to expedite AML alerts, get the right information to the right compliance staff and ensure the SAR process takes place in a timely manner.
Beyond its immediate impact on compliance and customer service, automation should also be an important long-term consideration. Practically, AML client onboarding software can be implemented to scale with a firm’s growth goals and allows firms to keep pace with changes in the regulatory environment in a manner which does not disrupt the delivery of services to clients.
Going forward, it is also important that automated onboarding is used to complement human AML/CFT experience and expertise. Implemented as part of a hybrid AML/CFT process, automated onboarding should be a tool that compliance teams can use to ensure both regulatory and customer service goals continue to be met.