KYC in an Increasingly Complex Landscape

Reported by Fenergo

Summary of U.S.-Focused Insights from the KYC Trends 2024 Report

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1. Rising Costs of KYC Compliance in the U.S.:

Financial institutions (FIs) in the U.S. face significant compliance challenges, spending a substantial portion of their operational budgets on Know Your Customer (KYC) processes. While the average cost per KYC review dropped to $2,064 in 2024 (from $2,476 in 2023), operational inefficiencies persist. The need for automation and improved data management systems remains critical.

2. Increased Client Abandonment:

Over half (56%) of U.S.-based banks reported losing clients during onboarding in 2024, a slight increase from the previous year. Poor data management and siloed processes were cited as major contributors. Inefficient onboarding experiences have led clients to seek alternatives, exacerbating the impact of outdated technologies.

3. Operational Inefficiencies and Legacy Systems:

Approximately 97% of U.S. financial institutions identified manual processing as a significant barrier to efficiency. Siloed data and communication challenges between internal departments contribute to delays and fragmented workflows, emphasizing the urgent need for integrated systems.

4. Technology and Automation in the U.S.:

U.S. financial institutions are increasingly adopting Artificial Intelligence (AI) to improve data accuracy (44%) and enhance operational efficiency (40%). However, nearly 68% of FIs report inflexible systems, limiting their ability to adapt to regulatory changes quickly. Investments in advanced solutions for data integration and automation are viewed as essential.

5. Regulatory Pressure and Compliance Priorities:

In 2023, U.S. regulators issued $482 million in fines for non-compliance with anti-money laundering (AML) and KYC obligations, underscoring the high stakes of non-compliance. Key areas of focus for 2024 include financial crime risk, information security, and reputational risk.

6. AI Adoption and KYC Streamlining:

AI’s role in the U.S. has been primarily in data accuracy and operational efficiency. Despite its potential, banks have struggled to implement end-to-end solutions to counter the inefficiencies arising from manual and semi-manual processes. This underscores the need for more robust digital transformations.

7. Impact on Client Lifecycle Management (CLM):

U.S. banks face difficulties in maintaining a clear view of client risk, stemming from disjointed reporting and offline risk management processes. Poor digital experiences during onboarding also hinder customer retention. Banks must invest in modern technologies to enhance CLM capabilities.

8. Future Outlook:

Despite reductions in compliance costs, the operational and reputational risks associated with inefficient KYC processes remain significant. Banks in the U.S. are under pressure to adopt more agile, technology-driven solutions to stay competitive and compliant amidst evolving regulatory landscapes.