KYC compliance strategies that your customers will love

Introducing:

Anthony Bracco PNC Bank

Greg Carmean Experian

©Experian 3 4/26/2017 Experian Public Vision 2017

“Victorious warriors win first and then go to war, while defeated warriors go to war first and then seek to win”

― Sun Tzu, The Art of War


Common client problems Regulatory compliance and fraud detection

Need to use analytics,

automation and workflow

efficiencies to reduce

customer acquisition costs

and enhance customer

experience while

mitigating risk

Technology

Conducting KYC on

businesses and beneficial

owners to as well as

identifying shell companies,

shelf companies and

commercial identity theft can

be costly and both in dollars

and resources

Economic

Manual review and requests

for additional documentation

to meet regulatory

requirements may create

significant friction at the point

of sale

Customer

KYC violations carry billions

of dollars in criminal and civil

fines, possible jail time and

negative company press

Regulatory

Client problems


Anti-money laundering compliance challenges faced by organizations

0% 10% 20% 30% 40% 50% 60% 70%

Budget constraints and increasedscrutiny of third-party reviews

Too many false positivescreening results

Insufficient/outdated technology

Having enough properly trained AML staff

Increased regulatory expectations andenforcement of current regulations

% of respondents

*Source: Dow Jones and ACAMS Global Anti-Money Laundering Survey 2016


“The typical organization loses 5% of

revenues in a given year as a result of fraud”

“While the median duration of the frauds

in our study was 18 months, the losses rose

as the duration increased… schemes that

lasted more than five years caused a median

loss of $850,000”

Increased losses associated with fraudsters that penetrate your defenses

Source: Association of Certified Fraud Examiners Report to the Nations on Occupational Fraud and

Abuse 2016 Global Fraud Study


“Three-fifths of chief executives said

they believed corporate brand and reputation

represented more than 40% of their company’s

market capitalization.”

“Executives with scandal-tainted companies

on their resumes pay a penalty on the job

market, even if they clearly had nothing

to do with the trouble. Overall, these executives

are paid nearly 4% less than their peers.”

Reputational exposure that can impact you and your company

Source: World Economic Forum

Source: The Scandal Effect — Harvard Business Review

September 2016


• Balance customer experience with securing the right data to optimize your verification process

• Work with your vendor and compliance department to set responsible match cut offs

• Adopt a risk-based strategy, applying additional fraud checks to keep fraudsters out of your portfolio

There is no silver bullet Regulatory compliance and fraud prevention are complementary but require coordination


• Business match rate is too low, requiring excessive manual review

• Current business verification process creates too much friction

• Insufficient staffing to do adequate CIP and fraud screening when acquiring new accounts

• Poor data quality

What is your biggest challenge in verifying business identities as part of your Customer Identification Program?


Identifying potential gaps


“More than one-third of the institutions noted

that data quality and availability was one of

their top operational challenges relating to

their current CDD/KYC program”

“Of financial executives survey, 33% stated

that data quality was a significant challenge

in investigating crimes.”

Data quality

Source: NICE Actimize “Customer Due Diligence (CDD Market Survey”, June 2015)

Source: PWC Global Economic Crime Survey 2016 — Financial Services Industry Insights


Areas of exposure across the business enterprise


• Intergroup and departmental communication

• Operational alignment

• Adequate staffing / training

• Budget management

• Policy alignment and governance

• Awareness of regulatory changes

What are your organizational KYC and fraud blind spots?


Operational optimization


• Engage executive sponsorship

• Embrace a holistic customer view

• Collaborate across units / departments

• Optimize resources for remediation

Adopting an enterprise view of risk


25% or greater ownership

10% or greater ownership

Other

At what level of ownership does your company currently screen beneficial owners?


Data collection practices

• Redundant input fields

• Lack of field validation leading to dirty or incomplete data

• Failure to collect business and DBA name; physical and billing address

Delays due to highly manual processes

• Limited use of automation and analytics

• Multiple vendor lookups

• Delays in obtaining hard copy documentation (e.g., utility bills)

Potentially preventable reasons for customer friction


Beneficial owner matching

• Comprehensive consumer bureau coverage (over 200 million credit active U.S. consumers)

• Broad coverage yields high match rates (95%+) using very tight matching parameters

• Verification results are often cross-referenced to SSN, accommodating name variations on bureau files

Complexities in authenticating business vs. beneficial owner identities

Challenges to customer experience:

• Identification and verification of potentially multiple beneficial owners to meet FinCEN final rule

• 47% – percentage of institutions verify beneficial ownership down to the 25% level

• 26% – percentage of institutions verify beneficial ownership down to the 10% level*

*Source: Dow Jones and ACAMS Global Anti-Money Laundering Survey 2016


Business identities

• Complex identifiers more challenging

– TaxIDs: Federal and State (the government doesn’t make FEINs readily available)

– Name: Legal and trade

– Address: Headquarters/branch, parent/subsidiary

• Different business structures (i.e., corporations vs. sole proprietors)

• Names may include special characters (e.g., @, &, etc.) impacting matching

Complexities in authenticating business vs. consumer identities

Branch location Branch location

Headquarters


Most verification vendors will provide a measure of match confidence to enable automated match thresholds:

• Single numeric value (1-100 where higher scores indicate stronger match)

• Match codes that identify quality of match in addition to other attributes (e.g., current vs. previous address, branch vs. HQ location, number of sources matched, etc.)

• Probabilistic match score that provides proximity between the input data and data on file

Meeting your match Setting automated verification thresholds


Example of business verification thresholds Scale 1–100*

Consultation

with your

compliance

department

can help set

appropriate

cut offs

Perfect: 100 score – character-for-character match

Direct hit: 99 score – missing “Inc” in name and suite number

Direct hit: 93 score – slight name differences, different suite number


New commercial search and match systems enhanced by “Big Data” search technologies impact on automated verification

• Impact on automated verification

– Enables higher match rates with greater precision

• Incremental high-confidence matches: 11%

• Records with improved match confidence: 5%

• Impact on manual review

– Enables interactive free-from searching (e.g., Google)

– Allows minimal search criteria, but provides greater precision as data is added

The impact of Big Data technology


Business identity matching

• Provide data that is as clean and complete as possible

• Many financial institutions will accept two of three commercial and three of four consumer verification fields as long as one of the fields is name

• Look for solutions that can verify business and owner in a single transaction

• Explore the use of probabilistic matching techniques

• Collect business legal names, DBAs, billing and physical address when possible – more effort on the front end can significantly reduce manual reviews

Improving commercial customer identification experience and outcomes

Branch location Branch location

Headquarters

One regional bank’s match rate went from 88% when submitting a single

name and address, to 96% when submitting two names (i.e., legal and

Doing Business As) and addresses (i.e., billing and physical)


Sample fraud and regulatory approach How fraud and verification products can work together to solve client problems

Automated verification

Manual verification

Account verified

No records found

Enhanced due diligence

Document submission

Approved

Expanded fraud, reputational and

compliance checks

High risk account

Enhanced due diligence

Low risk accounts

Enhanced automated verification


Business activity

• Inquiry activity

• Public record updates

• Trade activity

• Disputes

• Financial instability

Business structure

• LLCs

• Sole Props

• Nonprofits

Additional business risk indicators


• Data sourcing and management

– Coverage

– Currency

– Credibility

• Technical capabilities

– Accessibility

– Matching

• Analytic expertise

• Thought leadership

Vendor assessment areas


• Openness to new ideas and innovation

• Stay abreast of changes in the industry

• Press your comfort zone

• Conferences and industry organizations (ACAMS)

Seeking constant improvement


Expected outcomes


• Higher customer satisfaction

• Reduced cost and man hours

• Reduced fraud losses

• Better understanding of fraud losses vs. charge offs

• Improved profitability

• Reduced regulatory exposure

Partnership pays


Balance customer experience with securing the right data to optimize your verification process

Work with your vendor and compliance department to set responsible match cut-offs

Adopt a risk-based strategy, applying additional fraud checks to keep fraudsters out of your portfolio

There is no silver bullet Regulatory compliance and fraud prevention are complementary but require coordination


Experian contact:

Greg.Carmean [email protected]

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KYC compliance strategies that your customers will love

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