Improvements to banking KYC needed to build customer commitment

Tom Loonen, banking and financial law expert of Pinsent Masons, also professor financial law and integrity of VU University Amsterdam headed the research that analysed the importance of Know Your Customer (KYC) processes within the banking sector.

KYC is a set of processes allowing banks and other financial institutions to analyse the identities of organisations and individuals they want to onboard of already do business with, while ensuring that those entities are acting legally. KYC allows firms within the banking sector to look at who their customers are and the nature of customer relationships, as well as providing processes to help better protect against money laundering, financial terrorism, and other criminal acts of such as fraud.

With the increase of online and virtual banking methods, banks now have progressively less contact with customers. Often, the only contact with their customers is through a KYC employee, for example when banks are looking to better understand the nature of a complex fiscal structure or looking into where cash from has originated from. This lack of contact has resulted in a decrease in confidence between banks and customers, the research noted. “If you look at confidence in the financial sector, it’s still low,” however, “our research really paints a more nuanced picture of the KYC-work” Loonen said.

The recent research included input from KYC analysts at medium and large sized Dutch banks and found that “according to them, the way in which banks are engaged in the fight against money laundering and terrorist financing really does contribute to making our society safer. They also feel that they usually have sufficient authority and powers,” Loonen added.

However, the research did identity some gaps in bank’s current KYC processes, with Loonen noting that further training is required across the industry to improve customer relations.

Loonen said: “The majority of KYC analysts said they regularly experience resistance from the customer. That reinformed my belief that they need to be trained. For example, they must be able to better explain to the customer why it is necessary for the bank to know where capital comes from, and who the ultimate beneficial owner of a company is. These analysts need to be able to ask in-depth questions, and on the other hand really connect with customers.” Furthermore, customers should be more encouraged to get committed more in the KYC-process. “Why do banks not reward customers if they are willing to cooperate in providing more documentation or information?” Loonen argues.

The research further highlighted that improving KYC processes may create an opportunity to broaden the goals of putting the customer first. Due to the often-personal contact between a KYC analyst and a customer, the employee may be able to identify further needs of a customer. For example, “if you see during contact that customer really needs insurance, then it is a missed opportunity for both bank and customer if you do not teach them anything about it.” This further training and could allow for both risk and opportunity to be identified by banks, with aims of improving overall financial security within the industry.