Paper to Digital - Customer on boarding (AML/KYC)
The Anti-Money Laundering (AML) and Countering Financing of Terrorism (CFT) Act 2009 (the Act) places regulatory obligations on New Zealand’s financial institutions to detect and deter money laundering and terrorism financing.
The Act was designed to facilitate cooperation among reporting entities, supervisors, and government agencies, in particular, law enforcement and regulatory agencies to combat money laundering and terrorism financing.
The financial institutes that need to comply with this regulation include (but are not limited to):
- Issuers of securities
- Licensed supervisors
- Derivatives issuers and dealers
- DIMS providers
- Fund managers
- Brokers and custodians
- Financial advisers
- Equity crowdfunding platforms
- Peer-to-peer lenders
For any institute that needs to comply with the Act, there are a number of obligations that they must meet, including:
- A written risk assessment for their business offering to determine the potential risks of AML/ CFT
- Put in place a compliance programme - setting out procedures, policies and controls for detecting, managing and mitigating the risk of money laundering, and the financing of terrorism.
- Provide annual reports to the Financial Markets Authority (FMA)
- Get independently audited every two years and;
- Report on any transactions that break one of the following prescribed thresholds;
- NZ $1,000 or more for an international wire transfer; and
- NZ$10,000 or more for a domestic physical cash transaction.
Whilst the Act is designed to combat money laundering and terrorism funding, it adds signifant regulatory burden to new and existing players, causing many traditional institutes to develop long winded, manual processes to onboard/ sign up their new customers and manage existing.
With most traditional institutes facing the same manual processes and heavy regulatory burdens, there exists a great opportunity to smooth out the onboarding process to improve a customers experience and retention. Within this opportunity, also lies a risk that poor implementation may have the opposite effect, alienating your potential customers.
In reviewing the current process, we see that when a customer signs up to a financial service provider, they must fill out paper forms to provide their personal information, including name, date of birth, address, etc.
To meet the requirements for AML and Know Your Customer (KYC), copies of a photo ID are required as well as a supporting questionnaire and documentation to understand, in an investment context, where a person's wealth has come from i.e. inheritance, and how it is going to be used.
The outcome of this process is a long winded manual form, which takes significant time to complete. In the event that you are completing the forms remotely, the process involves getting copies of IDs and supporting documents verified by an external party, such as a Justice of Peace, Lawyer or Police Officer.
In the case of a Trust, each Trustee must complete this same process before they can be signed up to a financial service. With many Trusts having members spread globally, this can significantly increase the onboarding process and time.
Upon completion of the forms, the data gathered is then entered into the various customer management systems (CRMs) and internal databases to start providing the service. The time to sign up can take anywhere from 1 to 2 weeks depending on the internal process of the financial institution.
For many of these institutions, these processes have been developed over decades of operation to match regulation, with much of their business being done face to face, in offices spread across the country.
With the world moving to a digital first approach and with the wealth starting to move to younger generations, the expectation of customers is rapidly evolving to a digital first approach from traditional institutions.
How do you make the change from paper to digital?
To enable this digital first approach, there have been relatively significant changes in both the technology and regulation spaces, allowing for example digital signatures and online ID verification tools to be used to onboard a customer.
The challenge with many of these tools is that they generally only solve one piece of the digital puzzle, with a range of tools being required to create a digital onboarding process. If not implemented correctly, this can create a disjointed process, which involves manual workarounds and can slow the overall process.
YouDo solve this challenge by working alongside our clients to understand their onboarding requirements and existing processes. Once we have a deep understanding of the current process, YouDo reengineers this to integrate external tools such as Docusign, to create a seamless and automated onboarding experience.
The end result is a highly integrated system which fits our clients needs like a glove as shown in the below example.
In changing from a paper based system to a digital solution, the data collected during the onboarding process can be automatically pushed to existing internal systems, significantly increasing back office efficiency and reducing manual entry errors. This data can be used to generate reports, and trigger alerts based on predefined business rules - automating much of the compliance reporting and reducing regulatory overheads on a financial institute, saving time and freeing up resources to work on generating more business.
From a customer perspective, by creating a digital onboarding process, they can remotely onboard themselves via a company website or by sharing specific links to say Trustees, giving them the ability to complete the onboarding process from anywhere in the world.
By reducing these barriers and creating a succinct process through a combination of off the shelf tools and a bespoke onboarding process, the customers get a pleasant experience, whilst the financial institute significantly improves their back office efficiency with a solution that fits 100% of their needs.
