Risk-Based KYC and Due Diligence Remediation: 4 Essential Steps

Step 1: Segmentation for Risk Management

To effectively manage both risk and value, it’s essential to segment customers more finely. This approach allows banks to allocate remediation efforts based on the level of risk posed by each customer.

• Benefits: By segmenting customers into multiple categories (10-30), banks can:
  • Focus on high-risk customers
  • Minimize effort for low-risk customers
  • Align remediation efforts with risk levels

Step 2: Leveraging Self-Service Solutions

Self-service solutions that are risk-sensitive and carry minimal execution costs should be the default option for customers providing KYC information.

• Benefits: By automating more questions for high-risk customers, banks can:
  • Reduce burden on low-risk customers
  • Improve efficiency in remediation efforts

Step 3: Tailoring Remediation Efforts

Remediation efforts should be tailored and tracked at the individual customer level to inform required actions and provide a clear view of progress.

• Benefits: This approach enables:
  • Targeted remediation efforts
  • Transparent progress tracking
  • Informed decision-making for operations, boards, and regulators

Step 4: Utilizing Third-Party Data and AI

Banks can leverage third-party data, external providers, and artificial intelligence (AI) to accelerate learnings from remediation efforts.

• Benefits: By utilizing off-the-shelf solutions and data providers, banks can:
  • Quickly stitch together an integrated solution
  • Accelerate learnings with AI

Pragmatic Approach for Remediation

In keeping with agile principles that strive for incremental improvements and fast learning, consider a pragmatic approach to remediation.

• Segmenting customers: Use available customer information to segment customers more finely, such as:
  • Customers with limited risks (e.g., deposit accounts, pension products, low transactions)
  • High-priority categories (e.g., digital channel onboarding without in-person verification)

Supplementing In-House Data

Consider supplementing in-house customer data with external data, such as public records on the average wealth of university students in different regions.

By following these steps and adopting a pragmatic approach, banks can effectively manage risk and value while ensuring efficient remediation efforts.