Before 2020, KYC due diligence teams were already under pressure from regulatory, industry and technological changes. When the pandemic hit, they suddenly faced an additional set of challenges as they were forced to transition to remote KYC due diligence virtually overnight.

Months later, financial institutions, along with regulatory bodies, are still figuring out how to navigate this new and unfamiliar landscape. Recently, we spoke to select risk and lifecycle management executives at top global sell-side organizations about the challenges they face as a direct result of the pandemic, the solutions they have put in place and their predictions for the future of KYC due diligence in an ever-changing world.

Digital verification

The rapid rise of the remote and digital workplace has posed additional challenges in terms of verification and control—especially for firms whose operations cross multiple jurisdictions. In the blink of an eye, the infrastructure built on physical signatures collapsed, forcing organizations to find new workarounds. While implementing digital signatures and digital documentation technology were on the roadmap for many, the pandemic has accelerated the adoption of these technologies, even for firms that demand the highest standards of control and execute on behalf of their clients.

While corporate and investment banking have very different requirements than the retail and challenger banks for whom digital identity is already part of the infrastructure, they are actively exploring the potential applications for KYC and onboarding activities. While the changing nature of the regulatory reform agenda complicates the issue, there is a growing recognition that if a client could present a digital, verified KYC identity to every bank they deal with, it could support a near real-time onboarding process.

Workflow technology

Technology has been a powerful enabler across the board, helping firms to meet their objectives and keep throughput and productivity on target despite considerable business disruptions. KYC and CLM teams that had invested in digitalization before the pandemic generally found that they were able to maintain momentum and avoid backlogs during the transition to WFH because they were underpinned by technology that supported remote collaboration and coordination.

While some firms placed innovation and transformation initiatives on hold for the first few months of the pandemic, others chose to move forward despite the outbreak and saw success. As KYC teams acclimate to the new normal, and as the examples of successful remote implementations circulate, the industry is likely to see a wave of digital transformation initiatives as the financial services industry seeks out ways to create efficiency and reduce time to market across global jurisdictions.

For many, the ultimate goal in the current remote environment is to achieve a fully digitized workflow that connects KYC due diligence teams to the full range of internal and external stakeholders who contribute to the process. The technology is not there yet, but it is evolving rapidly, and forward-looking firms will be working towards that goal in the months and years to come.

Managed services

Remote work, in some form, is here to stay, and this will effect a permanent change in the way KYC due diligence teams get things done. In some cases, this may result in a greater reliance on managed services providers, with experienced resources and cutting-edge technology that can enhanced remote in-house teams. Internal cost reductions can be a driver for firms that have not relied on managed services before, motivating them to select partners capable of supporting them in specific areas, such as data and documentation capture.

The integration of managed services into the remote workflow can also confer a technological benefit to the in-house team. Many managed service providers leverage new rules-based digital technologies, such as data aggregation or document-gathering technologies, in their service delivery. Technologies folded into service delivery may include passporting, which passes some of the responsibility back to the client for verifying and sharing the information required for KYC activities, and OCR or blockchain technology to facilitate the digital ingestion and verification of the information. While some firms are investing directly in technologies that support KYC processes, those that are holding off for budgetary or economic reasons may look to external providers to not only help them manage their KYC obligations but also provide access to these technologies.

KYC faces a new normal

The pandemic has had a profound impact on the KYC due diligence function. Nearly a year later, it's clear that the impact will be long lasting. Most risk and lifecycle management executives believe that the remote workplace is here to stay as employees continue to enjoy the flexibility of WFM and demonstrate that the quality and efficiency of their work remains unimpaired. While the new workplace may have increased the use of managed services, the greatest change is the renewed reliance and focus on technology and its potential to transform KYC processes. As KYC due diligence teams continue to adapt, access to accurate data, technologies such as digital verification and automated workflows will enable them to turn the realities of remote work into a competitive advantage.

S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.