How to better understand your

customers using context

A guide to transforming
your KYC processes
Transform your
customer understanding
with context Quick links
With laborious onboarding, refresh and remediation
processes, the challenge of Know Your Customer (KYC) Why now?
compliance is continuously growing. Since KYC is outdated
almost as soon as it’s completed, you are reliant on static
and time-limited data to understand your customer and
Current challenges
their risk.

By adopting a contextual approach, you can reduce

the time and cost of KYC by increasing automation A contextual approach to KYC
and leveraging decision intelligence for continual
monitoring. Increasing regulatory, cost and
customer pressures demand a new way of thinking. Enhancing the customer lifecycle

Context is the missing link.

 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

The three waves of KYC evolution

1 2 3

KYC and AML regulation Big fines as regulatory The cost of compliance
emerges globally standards increase continues to grow

Money laundering and financial crime has In 2012, U.S. authorities fined financial As KYC requirements become increasingly
long been an issue concerning national institutions billions of dollars for failings in stringent due to new regulations such
government. But the establishment of financial crime controls – many relating to as the EU 5th and 6th Money Laundering
the Financial Action Task Force (FATF) in KYC. This triggered a dramatic increase in Directives, the cost of compliance
1989 is often seen as the starting point for KYC-related fines globally and kickstarted continues to escalate – and so do negative
global efforts to combat money laundering, the focus on KYC within financial institutions. customer experiences. KPMG estimates a
especially involving coordinated action by 16% annual increase in due diligence costs.
financial institutions. With increasing regulations, many global But while established financial institutions
financial institutions had to remediate their spend more on KYC than ever, challenger
Published in 1990, FATF’s original “40 KYC files to improve checks across huge firms are adopting innovative KYC
Recommendations” started to address portions of their customer base. This often processes to create competitive advantage.
the need for KYC, particularly around required the use of expensive external
customer identification and verification. consultancies and look-back exercises which Organizations are trialing automation,
The September 11th terrorist attacks incurred high levels of project-related costs. robotics and AI within KYC but are yet to
spurred the USA PATRIOT Act, intensifying It further resulted in expensive investment reach a true transformation. The missing
financial crime efforts and the countering in entirely new BAU processes, people and ingredient is context. Using context,
of terrorist financing. technologies. financial institutions can finally transform
KYC processes from reactive compliance to
proactive risk management.

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“ Only 18% of financial
institutions proactively take
actions when an event occurs
to trigger a KYC review
- Refinitiv, 2017
”
 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

KYC onboarding
and refresh continue 40%
KYC accounts for over 40% of a
financial institution’s overall cost
of AML compliance.

to drive cost and

complexity Despite the rise in headcount,

34%
34% of financial institutions cite
a lack of resources as the biggest
While customer onboarding continues to present a challenge in conducting KYC and
challenge for financial institutions, most firms struggle CDD processes.
even more with the need to continually monitor their
existing customer relationships for signs of high-risk
activity.
Up to 80% of AML/KYC efforts

80%
When customer refreshes are performed, Refinitiv is committed to information
estimates that the process takes an average of 20 days gathering, rather than analyzing
to review a corporate customer and requires three and monitoring data for critical
intelligence.
separate customer contacts.

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 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

The regulatory landscape is constantly

changing Over the past decade, financial institutions have faced increasingly more stringent AML and
KYC regulations, which vary across geographies. As financial institutions battle to adhere
to KYC requirements, there are growing backlogs of unreviewed cases holding undetected
Global risk.
FATF’s updated set of recommendations
in 2012 remain standard guidance
for financial institutions globally
Europe
around identification of customers and
In 2017, 4AMLD emphasized the
ownership.
need for the full implementation Hong Kong
of a risk-based approach, with
In March 2020, FATF issued new In June 2019, HKMA
specific provisions on beneficial
guidance on the use of digital identity issued feedback to
ownership, enhanced due diligence
which sets new recommendations on its financial institutions
and changes around the definition
use within CDD. following a CDD thematic
of a PEP. As of 2020, 5AMLD
introduced new legal requirements review highlighting that
for the recording of beneficial customers’ financial crime
ownership. 6AMLD will come into risk assessments should
effect in 2021 and is expected to be ongoing and dynamic,
Canada continue to raise the bar in relation not based on static
to KYC. information collected at
In 2019, FINTRAC onboarding.
amended regulation to
United States require renewed focus on
evidencing the accuracy
In 2018, FinCEN issued new of beneficial ownership Australia
guidance on its CDD Rule, details and expanding CDD
clarifying points around requirements to additional AUSTRAC has issued
calculation and identification of business types. guidance for performing
beneficial ownership for legal due diligence during the
entity customers. COVID-19 pandemic,
particularly around the use
The OFAC 50% Rule creates of remote onboarding and
additional complexities for verification of customer data.
determining whether a customer
has owners or controllers that
are considered sanctioned.

Singapore
In 2020 Singapore’s ACRA announced plans to build a central, non-
public register of beneficial ownership for Singaporean companies.
 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

Ineffective KYC increases your

reputational risk Financial institutions face a multitude of challenges with existing
KYC processes throughout the customer lifecycle, which increase
reputational risk, raise the cost of compliance and damage
customer relationships. These include:

Ineffective systems Customer outreach

are missing risk results in poor
Rudimentary risk customer experience
assessments are often
Focus on technical Due to the reliance on data
carried out on static compliance provided by customers to
variables, such as Poor quality data Due diligence is generally complete KYC profiles,
Manual processes
geography, rather than Manual processes result in still considered to be a multiple outreaches to
are time-consuming
dynamic variables, such as data captured in different compliance activity rather customers are often
observed behavior. Existing formats or using default than a holistic, strategic required. This negatively and error-prone
systems do not consider values due to heavy business process that can impacts customer Human analysts spend vast
network risk, instead workloads. Detailed quality strengthen and add value experience, increases amounts of time trawling
looking solely at isolated assurance and control are to customer relationships customer churn and delays through internal and
events, which results in required to ensure errors do and increase customer in opening an account external systems gathering
missed risk. not slip through. understanding. equate to revenue losses. and preparing data.

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 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

There’s more to KYC than onboarding

Onboarding Ongoing due diligence Exit

Financial institutions often lack a single There is a regulatory expectation to keep KYC profiles up to date Lacking a single customer
customer view, meaning you can’t tell if to inform other financial crime controls, such as transaction view makes it challenging
you already hold a relationship with new monitoring. However, KYC is outdated almost as soon as it’s to effectively offboard
customers. collected. customers due to the
difficulty ensuring you’ve
Without a complete understanding of Periodic reviews are handled manually, resulting in huge backlogs exited the relationship across
a prospect or customer, it’s difficult to and potentially missing customer risk between KYC reviews. After all products and business
effectively assess their financial crime opening an account, customers are less incentivized to engage with lines.
risk. you to provide updated information. A low-risk customer may move
to a high-risk jurisdiction but with current processes, this wouldn’t It is also difficult to prevent
This requires you to repeatedly reach be uncovered for up to five years. the re-entry of an offboarded
out to customers, not only resulting customer without context,
in extensive time and expense to Without context, it’s impossible to know if a customer is transacting which would automatically
onboard them, but also a poor customer with a high-risk company, or if they have a new high-risk owner. To identify exited customers
experience and high customer drop-out gain a complete understanding of a customer and their risk, you through network analysis,
rates during the process. must assess their entire network. such with phoenix operations.

“On average corporates have had six material changes over the last 24 months, but only 30% had made their financial institution aware of all
the changes. By failing to implement ongoing checks, financial institutions are increasing their risk exposure through involvement with clients
who may be undertaking new activities or entering new relationships that are not disclosed.”- Refinitiv, KYC Compliance survey

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 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

9
Case study Azerbaijani Laundromat

The Azerbaijani Laundromat scheme washed nearly $3 billion of illicit and corrupt funds through a series of shell companies and companies
with highly complex and opaque ownership structures. Examining the companies involved in this and other similar schemes reveals several
common risk factors that should have raised concern about the nature and purpose of the transactions these companies were engaging in.
This helps to demonstrate why effective KYC is a critical foundation to accurate financial crime detection and prevention.

Key risk factors

ABC Services Ltd
1• Financials show very low assets or a SIC code
100+ indicating dormant or non-trading status
1
2
2• Registered address is shared by several other
ABC Services Ltd Main Street, UK companies indicating the potential use of a companies
Shareholder

formation agent
r

Sha
lde

er

Sh
ld
o

reh
reh

ar
eh
3• Corporate suffixes do not match incorporation address.

eh
o

ar
Sha

lde

ol
Sh

de
Similar incorporation dates for related businesses
r

r
3 4 4• A large number of partners and owners listed,
potentially to avoid triggering ownership thresholds
OffshoreCo SA OffshoreCo AG InvestCo LP ManagementCo LP TopCo Ltd
5• Shared addresses show evidence of shell company
status
6
6• Frequent changes in ownership

5 7
7• Individuals with many different nationalities in offshore
jurisdictions

Mahe, Seychelles

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 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

10

Context throughout the customer lifecycle

Contextual KYC helps to refocus the entire financial crime control framework to be more customer centric. Using
contextual decision intelligence (CDI) to continuously evaluate each customer and their financial crime risk throughout the
customer lifecycle, this approach increases efficiency and effectiveness by breaking down barriers between previously
siloed financial crime processes.

5 Customer exit
Exit a customer outside of
risk appetite

Search across all

systems to ensure
Monitor customer customer relationship
4 appropriately exited
Gather data to
transactions Enrich and 1
and activity for automate data support due diligence
suspicious or Integrate with
gathering to build
a KYC network to
via entity resolution
reduce manual
fraudulent activity additional
financial crime effort

CDI
solutions

Rapidly perform
Continuously Monitor each risk assessment
3 customer’s KYC and reduce
monitor customer network for changes screening false Risk assess
context and KYC
and high-risk events positives 2
to reduce ongoing new customer
for changes and due diligence
or relationship
triggers

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 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

11

How to overcome KYC challenges

with context Contextual Decision Intelligence is a new approach to data that enables you
to connect multiple internal and external data sets to provide a single view of
customers enriched with intelligence about the relationships between people,
organizations and places. Understanding this customer context is to key to
automatically gathering data, and dramatically improving efficiency, effectiveness
and consistency of KYC.

Entity resolution Network generation Network monitoring

Connect your data to create a Highlight new or changing Reflect and continuously
single customer view risk levels monitor changes in your CLM
Connect billions of internal and external Use dynamic network generation Automatically update your customer’s
data sources—like KYC profiles, to automatically highlight new or KYC record in your CLM or KYC system
corporate registry data and transactions changing risks associated with your to reflect changes in their information
- to create a single customer view and customer, including transactions. and risk profile. Move away from
understand a customer and their risk, Reassess the customer risk score in periodic reviews with continuous
even before onboarding. real time to detect risk as they emerge. monitoring.

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Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

12

Entity resolution: Creating a single view of

customer
Entity resolution allows you create a single view
of your customers and their relationships across
CORP your organization using internal and external data
REG sources.

In this example:

• Mary Bloggs has been identified as the same

person across her Wealth, Joint and Business
accounts, despite differences in data within
Mary Bloggs
internal systems.
Bloggs Family
Construction Ltd.
• The business Bloggs Family Construction Ltd has
also been identified as a customer with a business
account, which is linked to Mary Bloggs

• Using third-party data to enrich internally-held

information, both Mary Bloggs and Bloggs Family
Wealth Account Joint Account Business Account Construction Ltd are identified as the same person
M BLOGGS MARY BLOGGS BLOGGS FAMILY and business referenced in an external corporate
JOE BLOGGS JR CONSTRUCTION registry database.

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 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

13

Network generation: Building a broader

context for your customer
Customer KYC network Network generation builds on entity resolution by expanding your
understanding of a customer beyond just the customer itself – and puts that
customer in context.

Owner E Owner F Owner G In this example, by building this customer’s relevant KYC network, we can:

• Identify the ultimate beneficial owners of Bloggs Family Construction Ltd,

Owner E, Owner F and Owner G
MegaCorp Bloggs
Construction Family
Co Ltd Holdings • Identify the corporate hierarchy and intermediate parent companies,
Director A MegaCorp Construction Co Ltd and Bloggs Family Holdings.
CORP
REG
• Identify the directors, addresses, financial data and more, available on
corporate registry databases, such as Director A and Director B.
Director B

• Maintain our resolved view of the original customers, Mary Bloggs and
Bloggs Family Construction Ltd.
Mary Bloggs Bloggs Family
Construction Ltd.

• Understand key transactional network information, such as Cement Mixers

Ltd being a significant counterparty of the business account for Bloggs
Family Construction Ltd.
Wealth Account Joint Account Business Account
M BLOGGS MARY BLOGGS BLOGGS FAMILY
JOE BLOGGS JR CONSTRUCTION
Cement Mixers Ltd

Customer risk rating: Standard risk

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 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

14

Network monitoring: Updating risk in real time

Customer KYC network Dynamic network context Continuous KYC monitoring allows you to dynamically
update your customer context and their associated
financial crime risk when information changes, in real
time

Owner E Owner F Owner G Offshore Owner Z In this example, we can:

• Immediately detect a change in beneficial ownership

to a new owner based in a high-risk jurisdiction
MegaCorp Bloggs through third-party data (Offshore Owner Z)
• Identify the addition of a new director (Director
Construction Family
Co Ltd Holdings

Director A
C) using third-party or internal data and they can
Director C
immediately be screened, risk assessed, and added to
CORP
REG the customer’s KYC record
• Detect a change in address from corporate registry
Director B data (123 Main St.) which can immediately be risk
assessed and automatically be sent to the customer
via a digital channel for review and acceptance
Mary Bloggs Bloggs Family
123 Main St. • Detect a new significant counterparty based in a
Construction Ltd.
high-risk country via transactional data and add to the
customer’s risk profile (Offshore Holdings Limited)

Wealth Account Joint Account Business Account

Considering all these changes to the customer’s network
M BLOGGS MARY BLOGGS
JOE BLOGGS JR
BLOGGS FAMILY
CONSTRUCTION
Offshore
Holdings
context suggests that the customer is now high risk
and should be immediately reviewed for financial crime
Cement Mixers Ltd Limited

concerns.
Customer risk rating: High risk

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 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

15

Moving from static to continuous KYC

• Start small and prove the model: Phase 0 Phase 1 Phase 2 Phase 3
Choose a particular book of
business, country or customer High Risk High Risk High Risk
type to start with to demonstrate
business benefit quickly
Medium Medium
Risk Risk All
• Build a business case: Medium Customers
to
Articulate both the efficiency
Low Risk
(time and effort savings) and Low Risk
Low Risk
effectiveness (risk reduction and
Low Risk
controls improvement) benefits
of continuous KYC
Phase 0 is KYC today - In Phase 1 you can start In Phase 2 you can Phase 3 provides full,
• Get the technology right: static, time-based review small and implement expand and bring all continuous KYC across
processes with static continuous KYC for a customer types into the entire customer
A contextual decision risk ratings and outdated low complexity book of scope, creating a full data set, with all
intelligence platform is critical customer information. business to prove the dynamic risk assessment customer risk assessed
model. Or alternatively and removing binary risk dynamically. Periodic
in allowing you to bring together
focus on your highest risk levels. Customer risk refresh is eliminated
multiple data sets, build context customers first for the events can be assessed or minimized as all
and detect risk biggest risk uplift. as they happen. information is continually
up to date.

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 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

16

Create a more efficient and effective

approach with contextual KYC
Consider the customer’s entire Bring together and intelligently Continuously monitor all Move away from a static,
network and context to help resolve any number of internal or sources of customer data for customer-centric view of
you make a risk decision external data sources to provide changes to constantly have an the world
a single view of your customer or updated KYC and risk profile.
prospect

Efficiency Effectiveness Customer experience

Reduce Spot hidden Improve

processing areas of customer
time risk experience
Automatically populate onboarding Use your customer’s entire network Dramatically reduce end-to-end
and refresh KYC forms and spend less to find areas of risk, including with processing time and minimize
time looking through false positives connected parties or transactions customer friction

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 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

17

Using Contextual KYC to improve

controls across financial crime
Contextual KYC is the foundation for better risk management
across the entire financial crime control framework.
Reduce false More targeted
Using the context provided by better understanding your customers you can positives and accurate
improve: within customer transaction
screening monitoring
Customer / counterparty name screening
• Use network information to discount or prioritize alerts, for example by
considering the geographies, counterparties and entities a customer is
connected to within the network.

Transaction monitoring
Faster
• Reduce false positives by using context to determine normal transaction
investigations
patterns, for example showing payment flows between companies within
and better
the same corporate structure. Contextual identification
• Use a dynamic risk assessment to provide more targeted transaction KYC of risk
monitoring for high risk customers.

Investigations
• Up to date customer KYC at your fingertips for all types of financial Easier and safer
crime and fraud investigations. exit of customer
relationships
Customer exits
• Confidently exit customer relationships, ensuring that the relationship is
fully exited in all business lines through accurate entity resolution.

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 Why now? Current challenges A contextual approach to KYC Enhancing the customer lifecycle

18

One platform for KYC, credit risk and

customer intelligence
When you understand your customers inside-out, you can see new opportunities, spot hidden risks, and speed up
the information-gathering process. Contextual decision intelligence allows you to address these three applications
across the customer lifecycle in one place, in a single build, using the same data.

Prospecting Onboarding Ongoing review Off-boarding / exit

…Account …monitor
…Customer
Customer is engaged,
opened, financial exposure, risk,
product issued, opportunities,
Lifecycle application
customer begins ad-hoc
submitted…
transacting… requests…
Pre-check Automated KYC Continuously
Identification of all
for financial onboarding and updated KYC with
linked accounts
crime risk easier EDD risk triggers
KYC

Automated data
Dynamic portfolio & Subordination
Indicative risk gathering and
network monitoring, scoring, identification
appetite augmented
Early warning triggers of connected entities
decisioning
Credit
Risk
Identification of Product Next best product, Record to CRM,
new prospects and opportunities wallet share, churn input to churn
connection and auto-fill prediction model
Customer
Internal Data External Data
Intelligence
Customers, citizens, transactions, applications, Company structures, UBOs, relationships,
products, comms, channel data, etc. enrichment, watchlists, events, etc.

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E . i nfo @q uantexa.co m