By Reetu Khosla
For financial institutions, onboarding new and existing customers is a major pain point. Complex due diligence requirements, along with an extensive, rapidly changing regulatory and enforcement environment, are impacting onboarding times globally. Banks may soon find this pace of change nearly impossible to keep up with. This development, combined with its impact on time-to-revenue and customer experience, is driving banks to re-evaluate their regulatory and onboarding processes across jurisdictions, lines of business, and client base.
As a result, the largest global banks are investing in know your customer (KYC), regulatory, and onboarding technology—not only to minimize the impact on costs, but also as part of the broader digital transformation agenda. However, all banks need to do something about this issue—and soon—not only to stay competitive, but to minimize the impact of regulatory scrutiny while keeping pace with change.
Even at the C-level, this issue is a top-five pain point.
According to a recent survey, 88% of banks believe that KYC due diligence requirements are impacting onboarding times. What’s more concerning is that only 21% of banks believe their current KYC technology is flexible enough to rapidly handle changing regulations. In an age when digital disruptors are infringing on banks’ clientele already, many banks are at an even further disadvantage due to older legacy systems that can’t keep up.
Fintech is the current buzzword that describes new technologies in the financial space that disrupt existing financial institutions. But there’s a new player on the scene. RegTech—that is, technology that facilitates compliance and delivery of regulatory requirements—is the newest subset of fintech.
In today’s rush toward digital transformation, onboarding and KYC remain top agenda items at the C-level and board-level. They are considered necessary not only to meet regulations but to stay competitive in a digital and global marketplace. And while many banks have focused on fintech, banks and regulators are now looking specifically at RegTech as a solution to long onboarding times and KYC compliance issues.
Considering your own RegTech strategies? Here are three questions to consider:
1. What are the key RegTech compliance features to look for?
Possibly the most important part of the RegTech equation is its ability to ensure banks remain compliant with ever-changing and increasingly complex regulations that are specific to geography, line-of-business, and product. This includes AML/CTF, FACTA, CRS, EMIR, MiFID II, Suitability, Dodd-Frank, and more.
The danger in implementing RegTech for specific applications—such as KYC—is that banks may end up creating further silos. That’s why it’s important to implement a RegTech solution that meets complex regulatory requirements across lines of business, booking entities, geographies, products, and customer types.
And the RegTech solution should do more than just “hold” due diligence rules. It should also have the ability to:
- Integrate fully with broader end-to-end onboarding and client-lifecycle management technology
- Offer front-to-back office onboarding, a global view of the customer, and the ability to drive multi-jurisdictional and multi-product onboarding on a global scale
- Integrate and wrap around legacy systems
- Drive the right requirements at the right time
- Reuse data
These capabilities are critical for improving customer experience, time-to-transact, and compliance, all in a cost effective and efficient way.
Additionally, the RegTech solution needs to be able to manage regulatory changes without hard coding. This will allow it to keep pace with regulatory findings and ever-changing regulations.
Finally, the solution should be capable of rapidly responding to audit and regulatory findings, with features such as automated bulk case creation, routing, and escalation, as well as auditability of rule changes. Having the ability to quickly update rules and rapidly address new findings reduces the amount of manual labor involved as well as risk.
2. What’s the best way to maximize cost savings and revenue gains through RegTech?
The key is to ensure the solution does not create more siloes. It should be part of a larger digital transformation strategy. Without the right technology, changing regulations can offset a number of necessary processes that need to fall into place to ensure compliance. That can mean more than 60-90 days to onboard customers. It can also mean repetitive due diligence requests, impacting the customer experience—and competitive advantage of the bank.
Financial institutions can reduce onboarding time and costs by approximately 70% during the onboarding process by looking at their RegTech spend as part of the larger onboarding and digital transformation agenda. This unified technology also means faster time-to-transact as well as time-to-revenue.
3. How can banks use RegTech to streamline customer journeys and drive customer centricity?
As clients demand a truly global experience, it will be important to move towards providing multi-jurisdictional, multi-product onboarding: one customer, one view across regions and products.
RegTech solutions—combined with proven fintech solutions—allow for onboarding in a timely, compliant, and transparent way because they have the ability to automate and streamline end-to-end processes that were previously cumbersome and disparate.
- Rules-driven processes allow banks to reduce the time spent onboarding customers in varying jurisdictions with the ability to apply what’s required, when required.
- The gathering of new information is limited to differences based on jurisdiction, product, or risk. This dramatically improves and streamlines full customer journeys to drive customer centricity through all channels and business lines, including corporate and investment banking, wealth, and retail.
- RegTech applications can be integrated with a broader application suite covering sales, onboarding, credit, and customer service. This creates a unified technology that can enable banks to provide a true digital, end-to-end experience that is transparent.
- Due diligence can be re-used globally, only asking for differences based on new products or services.
- Multiple tasks can be done in parallel globally, streamlining onerous manual processes, while ensuring consistent compliance.
It’s the ‘Uber effect’ of transparency and visibility. Additionally, by streamlining processes, banks have more time to focus on nurturing their relationships with customers instead of spending time on manual processes to ensure compliance and reduce risk.
Banks that want to move forward in their digital transformation efforts should not only focus their attention on RegTech, but ensure it is seamlessly unified with fintech apps in their day-to-day operations so they can keep up with the digital times.
Given today’s unprecedented regulatory scrutiny, large complex financial institutions will also need to invest in proven technologies that can span multiple regions and lines of business, and can easily adapt to change. Agility in technology, scalability, and front-to-back office transformation—while driving customer centricity and competitive advantage—will ultimately help financial institutions understand and manage risk more than ever before. RegTech should not create additional hard-coded siloed applications, but should be part of the large global digital onboarding and transformation agenda.
Reetu Khosla is senior director of risk, compliance and onboarding, at Pegasystems, a company that develops strategic applications for marketing, sales, customer service, and operations. Email: Reetu.Khosla@pega.com.