Governments, and therefore the financial regulators that serve them, want wealth management firms to treat their customers like suspects. Things do not, however, always have to be this way.

Your firm might be suffering from ever-tighter regulation and it might have to do more enhanced due diligence (EDD) than ever before when 'onboarding' wealthy individuals as customers, but it is important for you to remember that the 'C' in KYC stands for client, not criminal.

KYC ("know your client") screening has always involved checking for “red flags” or warning signals about clients ever since the term came into use after the terrorist attacks of 11 September 2001 on the Twin Towers in New York. Knowledge about clients, however, should never be the exclusive preserve of the compliance function, nor should a firm seek such knowledge solely to justify decisions not to do business with someone.

The best approach to KYC is a holistic one that uses technology-led "relationship intelligence" (see below) to good effect at all stages of the client's experience with the wealth management firm. KYC is, above all, a process of spotting the opportunities as well as the risks that a relationship presents and using everything that one can know about a client to increase his satisfaction and loyalty and deepen one's share of his wallet, i.e. the monetary amount that he regularly devotes to your brand rather than to competing brands in the same product category.

Broad business benefits

The business benefits of this approach are wide-ranging and go some way towards resolving many of the problems that plague prospective clients. Faster, frictionless and more confident onboarding is just the start.

It is beneficial for financial firm to have a single view of the client, i.e. an aggregated, consistent and holistic representation of the data that it holds about him. With this, it can reduce the (very real) risk of losing crucial data and duplicating its efforts. More importantly, however, it is bound to help the firm communicate with him and give him better advice. It is likely to help it function more smoothly, putting an end to siloed technology investments and fostering real teamwork between compliance officers and relationship managers (RMs).

So what do we mean by “relationship intelligence” (see above) and when might we use it? In essence, we mean the process of serving up precise, useable information about clients and prospects. We might do this with an eye either on risk or on opportunity and we could do it before, during or after onboarding. There are compelling "use cases" at each stage.

[NB In software and systems engineering, a "use case" is a list of actions or event steps typically defining the interactions between a role (known in the Unified Modelling Language as an actor) and a system to achieve a goal. The actor can be a human or other external system. Even though FinTech and RegTech use the same technology (AI, blockchains and so forth), their "use cases" are very different from one another.]

Pre-onboarding

At the prospecting stage, good KYC software alerts RMs to specific opportunities and generates 'leads' with scraps of information such as a piece of breaking news about a specific type of liquidity event, a material change at a corporate registry, such as the appointment of a new director, or a new share allocation.

The software then generates a tear sheet (i.e. a one-page summary) that contains information about the target, including his background, assets, career history, lifestyle, hobbies, philanthropic and political impulses, source of wealth and so on.

Furthermore, the software might reveal the fact that target A is a patron of the same charity as happy client B; as a result, the RM might be able to secure a warm introduction to Target A. Armed with all of this, he has a head start on his rivals, is better informed than they are and stands a much better chance of success in signing that potential client up.

KYC software can also ensure that a firm wastes no effort in wooing unsuitable prospects. At this point, it performs preliminary compliance checks automatically to establish the fact that there is no obvious reason why the compliance department should reject this client during the onboarding process.

Onboarding

This is where the software completes full "due diligence" but not in the traditional, labour-intensive and time-consuming way. Instead, the process is automated so that it screens all external and internal watchlist sources with a high degree of precision, corroborating existing information about sources of wealth and spotting "politically exposed persons" (PEPs), risky countries/industries, directorships, shareholdings (including ultimate beneficial ownership) and records of legal judgements.

Monitoring

When a firm has taken on a new client, it can then set the software onto monitoring mode. Monitoring can be periodic, but the industry is now moving towards monitoring all clients in real time. The business can therefore respond quickly to new developments. If the client is disqualified as a director, has new charges lodged against him or is cited as a sanctioned individual, a rapid response may be key to a regulatory defence. Ignorance will of course be no defence at all.

Yet again, though, this should not be all about risk. It is easy to see the business benefits of looking for positive developments which might represent opportunities to generate further business from the client. At the very least, the software can do wonders for the relationship if it gives the RM a nice reason (such as a marriage or some positive press) to pick up the telephone.

Recasting KYC

In today’s data economy, incalculable riches of intelligence about relationships are there to be harvested but of course this wealth of information can become a trap in itself.

The hard part in any monitoring programme is to ensure that the business is not swamped either with false positives or the same pieces of information popping up repeatedly, especially through the repetitive nature of news. A multilingual semantic search platform can filter out 'noise' and minimise that risk.

It is easy to fall into the trap of always thinking about KYC as a burdensome chore or of believing that sifting all the thousands of potential information sources out there is an unwinnable battle. It is time for KYC to be recast in a far more positive and profitable light.

* Dermot Corrigan can be reached at dermot.corrigan@smartkyc.com