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New research reveals worrying gaps in client screening practices


A survey produced in partnership with technology provider smartKYC finds that resourcing challenges – both human and technological – are exposing wealth managers to grave dangers on the KYC/AML and sanctions screening front. 

The firm writes that at a time when global banking groups continue to hit the headlines for client due diligence failings – and are being hit with multi-billion dollar fines as a result – it seems that a yawning gap has emerged between what technology-enabled best practice ought to be and what many wealth managers are actually able to do in this area.
“It is particularly worrying that in today’s fast-moving environment, 16 per cent of firms are fully rescreening their high-risk clients only annually, while at the other end of the spectrum 19 per cent have stepped this up to daily.”
The survey finds that significant investment appears to be afoot across the industry globally, however. Almost two-thirds (63 per cent) of wealth managers will increase their CDD spend in the next year, with a third maintaining current levels and just 4 per cent predicting a fall.
Of those increasing their budgets, just over a tenth (11 per cent) will focus on outsourcing, such as employing third-party specialists to compile client reports. The majority, however, were evenly split (44 per cent each) between those focused predominantly on recruiting more staff and those investing in technology.
Demand for senior compliance officers with the requisite knowledge and experience to tackle the thornier regulatory issues, and who can balance risk management with business development, has pushed wages dramatically up. Average remuneration for director-level compliance professionals hit GBP107,617 among London’s wealth managers last year, underscoring just how much of a priority optimising the use of their time is for firms today.
The firm writes that, in fact, such is compliance wage inflation that in fast-growing wealth hubs it is reportedly not unusual for compliance personnel to secure increases of 40 per cent with each move.
In CDD, as in so many other areas of compliance, wealth managers are turning to technology to help them cope with the sheer volume of regulatory change, the report says. “Preparatory and extensive remedial work is going on at a frenzied pace right across the industry, with firms facing a range of pain points related to regulation. Ranking jointly as the sector’s biggest CDD challenges are proving source of wealth/funds and PEP screening (29 per cent each). Yet issues around data capture and document collation (17 per cent), and detriment caused to the client experience caused by additional checks (11 per cent) are also high on the agenda.
The report says that new technological tools are designed to help wealth managers gain competitive advantages as well as mitigate the massive risks client screening failings represent. “Almost seven in ten wealth management professionals see synergies between compliance activities and sales today, such as in using broader media searches to really get to “Know Your Customer”.
Xavier Isaac, Head of Trust & Fiduciary at Salamanca Group Trust (Switzerland) and a key contributor to the report, says: “Wealth managers and trustees should not see changes driven by new regulation as a requirement but as an opportunity. This report assists firms in understanding how this can be achieved and how they might win or retain business as a result, whilst maintaining high compliance standards for the firm.
“With wealthy families from developing countries playing an increasingly important role in business growth and often presenting with a ‘high-risk’ profile, the ability to deliver seamless onboarding experience and organise regular re-screening checks through technological innovations in client due diligence is mission-critical.”
Alessandro Tonchia, Co-Founder of Finantix, a partner firm of smartKYC, says:
“It is now becoming prohibitive to hire so people are more open to doing more with technology by necessity. Wealth managers want technology providers to help them hire fewer people and then enable the ones they do hire to be more productive.
“We allow all internal staff to do more, including the junior ones, because our system interleaves data sources and the information is presented in the right format to aid decision-making and enforce compliance policies.”

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