Wealth management firms over-reliant on manual KYC and AML checks, with no plans for automation, according to new research

by | Dec 14, 2021

Over a third (36%) of wealth management firms are yet to invest in digitalising know-your-customer (KYC) identity checks when onboarding new clients, according to new research shared today by LexisNexis® Risk Solutions, the global data and analytics provider.

Similarly, the research found only 28% of firms have invested in digitalising AML checks, such as PEPs and sanctions screening, despite the complex and time-consuming nature of global checks and the risk to their business, if errors occur.

These findings hail from ThoughtLab’s latest report in conjunction with LexisNexis Risk Solutions, Wealth and asset management 4.0: How digital social, and regulatory shifts will transform the industry, a study of 2,325 investors and 500 wealth management firms.

It also found just one in ten (10%) firms have invested in digitalising their ultimate beneficial owner (UBO) checks – another essential AML process mandated under the 5th Anti-Money Laundering Directive (5MLD), which came into force in January 2020. Only one in three (36%) firms say they plan to invest in this area in the next two years.

This news comes amidst growing concerns around the increasing cost of AML compliance for UK financial institutions, which is set to hit £30 billion by 2023. Firms typically spend 70% of budgets on staff and manual processes compared to just 25% of technology that can automate and streamline processes – according to the Cutting the Cost of AML Compliance report.

Nina Kerkez, Director of Consulting at LexisNexis Risk Solutions, comments:

“Given the positive impact that good data and technology can have on a firms ability to effectively onboard and screen customers in line with KYC and AML responsibilities, it’s concerning to see that a considerable proportion of wealth management firms are not prioritising digitalisation.

“The risk from dirty money is continuing to rise in the UK, and so is the cost of mitigating it for businesses. Yet much of this risk and cost could be reduced by investing in technologies that do the heavy lifting when it comes to financial crime detection. Splitting budget more equally across people and technology would go a long way. 

“However, firms are also crying out for more guidance and support, with 93% of wealth management firms asking for more steer from the regulator in a poll we ran earlier this year. As such, the regulator must meet industry in the middle and consider how it can go beyond rule setting and encourage collaboration between organisations to ensure the most efficient route possible to universal AML compliance. Only then can we crack the UK’s dirty money problem.”

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