The Financial Action Task Force (FATF) guidance and the 5th EU Money Laundering Directive (MLD) have both asserted an expectation that regulated firms should digitise their customer identification processes. And that was before the global pandemic of Covid-19. Now more than ever an automated and 'digital first' approach to onboarding is critical for success.
‘FATF encourages the fullest use of responsible digital customer onboarding and delivery of digital financial services in light of social distancing measures.’
A statement by the FATF President, published in April 2020. The world is certainly changing, and the adoption of digital onboarding will need to increase significantly in order to support these changes.
Appetite for digital onboarding
Currently, different organisations have varying degrees of appetite when it comes to automation. Non-regulated businesses could be seen to have an easier adoption process as the added burden of compliance isn’t the uppermost consideration. But for regulated businesses, there is a sliding scale. This ranges from those that want to wait as long as possible before taking the plunge, to those that realise that automated onboarding can be simple to implement and that the benefits far outweigh the costs of integrating a digital solution.
However, enforcement plans are on the horizon, which will mean regulated entities will no longer have the choice of whether to adopt digital transformation or not.
Against this background, we have taken the opportunity to explore what holds some firms back; what drives those that have taken action; and why digital onboarding matters.
Barriers to onboarding
Automating onboarding to meet regulatory expectations can’t be achieved overnight, but identifying the right solution, developing a plan and integrating a solution, doesn’t have to be as over-complicated and lengthy a process as some may think. Many companies find that they can add automation within their existing commercial processes using a step-by-step approach.
Another inhibitor may be that in assessing the pre-sales activity chain, (which may already be using automation), the risk and compliance leaders are overwhelmed at the prospect of integrating new tools, especially between two functions that have sometimes been in contention.
Historically, ambitious plans to build new platforms or rebuild existing technical infrastructure have failed at board level approval. In the case of onboarding automation, integration shouldn’t be a big risk as these are plug and play tools. At NorthRow we understand the compliance process, and where automation can add the biggest benefits, maximising the return on your investment can work with businesses to deliver the evidence required.
The onboarding journey
Onboarding is a balance between customer experience, business risk management and meeting compliance obligations. As regulation increases, customer expectations change and criminals get more inventive, the goalposts are always moving. For this reason, digital transformation of the onboarding process can best be thought of as a journey rather than a destination.
The best way to approach is to create a roadmap, prioritise and make those first steps, whilst accepting that in the future requirements will change.
Onboarding is the first of the NorthRow compliance software solutions delivering balanced risk management decisions. But we recognise that it is not the first customer-related activity. Pre-onboarding steps include market research, target mapping, competitor profiling, prospect mining etc, and there are likely to be many well-established processes in place to support these commercial activities.
Onboarding, is, however, the most important step in establishing a risk profile for any counterparty relationship, it is the building block for all subsequent risk profiling. Get it right and it provides an assurance platform, a source of truth which, if properly attended to can provide the ongoing insight required by the business and by regulators, partners and clients. Indeed, external clients are becoming increasingly sensitive to the understanding and management of risk.
Making the case for investment
All businesses are looking to ensure sustainable and continued growth and are driven to differentiate themselves within their industry. They seek relationships as much as products, recognising that their world is dynamic. Their customers’ choice of provider won’t rest solely on current offerings but must be driven by whether the provider’s commitment is to customer experience as well as continued investment in its products and services.
Automation (digitization) means faster onboarding, lower customer attrition, reduced time to revenue and closer regulatory alignment. It’s a precursor to revenue capture, an enabler of scalability, a block against regulatory censure (audit, AML regs, GDPR etc) a ‘Trust’ marker for clients and prospects, and a source of data that should inform commercial strategy.
We have seen recently, with Covid-19, that automation is fundamental to ensuring business continuity. It is one of the requirements for a MVP (minimum viable proposition) for a regulated business facing the current risk landscape.
Investment in automation, in particular digital onboarding, can give rapid returns, in improved customer conversion rate, better productivity and better risk management. The requirement for automation is now a given, it is one of the pillars that secures the ability to operate. However, there is often internal competition for resources with other business areas. In building an investment case risk and compliance leaders will need to identify and articulate the benefits to user experience and the operational advantages such as scalability, flexibility and functionality, at least as clearly as they highlight the regulatory risk related advantages that will be captured de facto.
If you want to learn more about how NorthRow can digitally transform your client onboarding, monitoring and compliance process, get started today.
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