Compliance
KYC Checks Create Financial Inclusion Headache – Study

Know your client (KYC) tests are important, as the wealth industry knows. Beyond the ranks of high net worth individuals, how KYC is applied can create problems. In a global study from LexisNexis Risk Solutions that may have relevance for the HNW sector, it charts what needs to be done to fix the problem.
A study of almost 300 senior financial sector figures around the
world finds that many institutions in the sector turn away
potential clients because of the demands of KYC checks –
making financial inclusion more difficult.
The report, issued by LexisNexis®
Risk Solutions said “the most challenging customer onboarding
hurdles faced by institutions lay within difficulties collecting
and verifying customer information.”
Interest in data sharing to support KYC processes is growing.
Nearly 80 per cent of financial institutions express interest in
a global customer due diligence utility, compared with just
over 70 per cent in 2019, the study said.
The survey of banks, insurers and non-bank financial institutions
in 13 countries and regions aims to gain a better understanding
of financial institutions’ commitment to financial transparency,
financial inclusion and the difficulties they face in achieving
these twin goals.
While not specifically about wealthy clients, the findings of the
report show how KYC and other background checks can be frictional
costs for financial firms – but if managed correctly, may also
give some businesses a competitive advantage over their
peers.
Financial inclusion is a global concern. There are 1.4 billion
unbanked individuals globally, the study said, citing evidence
from The World Bank. Poverty, heavy reliance on cash, a history
of bad debt and/or a lack of financial education can all impede
access to financial services, the report said.
The authors of the report said financial institutions must
identify consumers and understand their risk profiles, both to
maintain regulatory compliance and support extending financial
services to consumers. The more institutions know about
consumers, the easier it is to offer appropriate financial
services.
However, 69 per cent of respondents agreed that the unbanked or
underbanked are harder to onboard than other types of customers
and businesses due to lack of data.
The report reveals that financial institutions can do more to
achieve greater transparency, indicated by the 64 per cent of
respondents who say identity verification is a challenge when
onboarding individuals.
Among other findings, the report said that Covid-19 made
financial crime and compliance operations at financial
institutions more difficult, with large numbers of applicants
seeking government assistance loans and financial institutions
being unable to verify identities in person due to
lockdowns.
However, the pandemic also led to financial institutions
embracing more digital practices, with 90 per cent of
institutions reporting that the pandemic had accelerated the
adoption of artificial intelligence and other next-generation
technologies.
“Financial institutions have clear responsibilities to verify
customer identities and ensure compliance with national and
international regulation,” Leslie Bailey, vice president,
financial crime compliance, LexisNexis Risk Solutions, said.
“Rejecting potential customers due to inefficient or manual
processes rather than regulatory reasons can be detrimental to
genuine individuals trying to access financial services. With
robust data and the right technology and processes in place,
institutions can help improve global rates of financial inclusion
without compromising on compliance.”