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How to reap the rewards of data-led KYC

Steve Elliot, Lexis Nexis Risk Solutions, Managing director, London, 4 March 2020


Research indicates that many businesses are reluctant to embrace a data-driven culture, but anyone who fails to do so will miss out on the benefits of data-led 'know your customer' controls. HNW individuals do not have static identities and risk profiles, so the data-led approach is the way forward.

By harnessing large, cross-industry data sets, one can now authenticate the identities of people faster than ever before and do so with more accuracy and lower KYC costs than ever before, while also being more 'compliant.’ This is available to any business that is prepared to change.

Customers’ changing identities

Humans are continuously changing their risk attributes and occupy complex interconnected networks that are also in a more-or-less constant state of flux; they do not have static identities and risk profiles. It’s therefore surprising that some firms are still failing to look any deeper than the basic legal data attributes of an individual – usually collected during On Boarding – when building online identity checks to fulfil their ‘Know Your Customer’ (KYC) obligations. If humans are the sum of complex attributes that are changing all the time, then a firm cannot expect its KYC records and customer risk profiles to be effective if it relies only on a few, static attributes of identity.
One's name, address and date of birth establish little more than a legal identity. Even if we expand these data attributes to include nationality, gender and passport number, we are not really building up a clear picture of who the HNWI is. His identity is built up of a plethora of other niche and more complex aspects: his biology, the devices he uses, the people to whom he talks and even his patterns of behaviour, among other things. If the private bank he approaches for business increases the number of data attributes that it wants to collect on him, it will be more certain about who he is and the risk profile that suits him best. To be effective, a customer verification and risk profiling process must therefore take into account all these aspects of his digital footprint to establish his full identity.

Reducing risk and the cost of compliance

Data is crucial to any financial firm that wants to know its customers better than in the past; the more data it can obtain and evaluate, the more it can learn about its customer base. If the data attributes it uses are too few and too static, it will fail to gain an accurate risk profile of its customers and will not truly know who they are. Ineffective data is also at the heart of so many of the very costly ‘false positive’ problems faced by firms, which tend to arise because the financial firm in question is not certain about the entities involved. However, rather than using effective data-led IT to 'screen' and otherwise authenticate entities effectively, far too many firms continue to resort to employing more and more people to investigate risk-profiling problems or screening shortfalls and, somewhat bizarrely, they expect them to do so with the same ineffective data sets.

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