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Frictionless digitalisation - the future of AML & KYC

On the 20th of July, Napier and NXTsoft joined forces to host a webinar aimed at exploring the journey of digitalisation businesses have been on over the last few decades, what is still yet to come in that journey, and what the future of AML and KYC looks like.

Napier AI
July 27, 2021

On the 20th of July, Napier and NXTsoft joined forces to host a webinar aimed at exploring the journey of digitalisation businesses have been on over the last few decades, what is still yet to come in that journey, and what the future of AML and KYC looks like.

The panel comprised:

You can watch the replay or read our summary of the key considerations for your journey on building a robust AML RegTech ecosystem:

“Frictionless digitalisation almost seems like an oxymoron for anybody that’s been involved in the business because it is clearly a challenge.” - Aidan Houlihan

1. Technology is only now catching up to demand for digitalisation

Disruption and change in the AML industry seem to be coming from all sides these days, and Holly explains that it’s an exciting, pivotal time to be involved in the industry because a shift in attitudes towards digitalisation has arisen.

Holly goes on to explain that there’s always been a demand and a desire for digitalisation from organisations, especially when it comes to converging silos of data, but what makes the market industry exciting right now is that technology like AI and Machine learning is turning that corner and progressing convergence ambitions into reality.

She went on to explain that one of the main driving forces behind digitalisation are the need for businesses to exist in a digital world, and demand from clients for seamless onboarding.

Historically, it’s been the case that there wasn’t much momentum for digitalisation, and that the latest innovations in technology have only been accessible to the largest companies, but in the modern market the capability to modernise has trickled down – allowing companies of most sizes to take control and provide the best service possible to their clients.

Aidan highlighted that the events of the previous year and the COVID-19 pandemic have propelled, even forced more serious consideration of digitalisation.

2. Why is digitalisation still hard?

For smaller or more regional businesses, there’s a perception that digitalisation presents more of a challenge, and Walter explains that as technology has become a key theme, this has translated into it becoming more accessible for regional and community institutions to take advantage of. He points to around five years ago, when the desire was certainly there among businesses for greater convergence and the integration of a frictionless digital strategy – but today’s innovations mean there is actually the opportunity to realise that desire.

Walter also highlights that now the technology is available, regional and smaller businesses can build their digital strategies and create a unique digital experience that includes improved brand image and representation for the company and a high-touch level of service for customers, including online or mobile banking services alongside traditional ‘brick and mortar’ services.  

Crucially, digitalisation was once a challenging prospect for smaller banks and organisations, but now the process has begun in earnest and become a priority for businesses of all sizes.

Aidan muses that digitisation felt like the future 10 years ago, but even today it can feel like it’s in the future still for many organisations. Greg also weighs in on the important question of why digitalisation still feels difficult for some, highlighting that the first wave of digitalisation was solving for regulation which moved very rapidly and was hard to keep up with (many didn’t and faced fines). Historically, just meeting regulatory requirements has created much work that organisations have struggled to futureproof their businesses at the same time. The pressures on businesses are only increasing, and the answer to this challenge lies in technology.

“You had so much work to do to get your house in order, that it’s been hard to futureproof that at the same time” - Greg Watson

3. Why it is crucial for organisations to digitalise

John highlights the importance of brand image for organisations as well as personal brand for the individuals working there. Reputability is an image that takes time, resources and energy to build because it requires a ‘bulletproof infrastructure’ that allowed you to handle markets-based businesses, but those same resources aren’t always put into bulletproofing the back and middle offices, or into the onboarding and KYC processes.

John advises the attendees that to build a reputation it’s important to establish a regulatory levels set, setting out what you stand for, what you want to achieve, and what technology you’re going to use to do enforce those standards.

“From the regulatory side of the table, you can tell when somebody across the table from you is trying to get it right and when someone is just checking a box” - John Neary

Setting a high standard and backing that up with a digital strategy puts you in a good standing with regulators, digital framework is key to delivering on your ambitions as an organisation, indicating good intent, and satisfying regulatory requirements.

4. What organisations want  

As previously mentioned, organisations have been on a digital journey for some years now, and Holly explains that in her experience of client needs, the focus now is on how to bring the existing, separate components at organisations together to form a cohesive, futureproofed AML approach. Clients are requiring different advice depending on where they’re at in the digitalisation process, and many are unsure of what steps to take next: what technology to use; what data to use; and how to ensure continuation going forward.

Holly highlights how with today’s technology, organisations are no longer forced to rip and replace old systems to introduce new ones, nor does it take years to do so today. Companies now have the relative luxury of choice and will often opt for several pieces of software and systems to achieve their compliance goals – and the challenge lies in bringing together the best systems in the best – and most cost effective – manner. Digitalisation targets look different for every client but in all cases, technology is the key to achieving them.

Agreeing with Holly, Walter emphasises that there are no rip and relplace, “golden eggs” or universal strategies when it comes to how institutions approach digitalisation – the common element is technology as a means to achieve their goals more efficiently.

5. Why is it important that organisations digitalise?

Financial organisations still have many labourious, even unnecessary ‘noise’ processes (like false positives) that take up valuable resources and time in a world that’s increasingly demanding that processes be instant. Through technology like AI and Machine Learning, these noise processes can be streamlined or even entirely automated, improving the overall efficiency and accuracy of an organisation’s compliance.

Greg brings in an example of a Napier client that had 150,000 legal entities and spent 1.3 million hours a year doing KYC refreshes – of which automation could save them 1 million hours.

He maintains that perpetual KYC is the best way to save substantial amounts of time and money like this and emphasises that while humans still have a significant role to play, AI technology improves efficiency by doing a great deal of filtering, detecting patterns, and prioritising the real, serious risks for companies to be investigated by human beings.

Concluding thoughts

Financial organisations have had desires to digitalise for many years now, but factors including technology and the COVID-19 pandemic have placed digitalisation as a firm priority for them.

Today, innovations in technology like AI and machine learning make digitalisation accessible and customisable for all sizes of organisations, digitalisation is no longer the distant and unfulfilled dream it was for most.

The digitalisation journey looks different for every organisation, but what is clear is that technology like AI and Machine Learning are the key component in bringing organisations up to standard with their compliance, and to futureproofing them for the ever-increasing demands presented by the fight against financial crime.

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