breakthroughs that identify,validate and augment customer data help financial
services organizations head off fraud, operate within the rules
of the most pressing issues facing the financial services industry today is the
prevailing emphasis on security and fraud prevention. Big data and analytics
are leveraging the power of the Internet, but also offering big, juicy plums
for hackers, credit card fraudsters, money launderers and terrorists.
response, many countries including the U.S. have established Know Your Customer
(KYC) requirements, intended to guide financial institutions in heading off
fraudulent transactions. A key way for banks to do this is to clearly Identify legitimate
banking clients and their business relationships so the bad operators become
more obvious and identifiable.
can be a challenge. Legitimate customers often have multiple banking
relationships with a single institution, with identifying information stored in
different formats in a multitude of databases. Various family members also may be
account owners, but have different names and live at different addresses,
possibly even in different countries.
all these threads together while at the same time correcting name misspellings,
standardizing mailing address formats, and parsing precise geolocation IDs can
be the stuff of banking compliance nightmares.
doing this due diligence, however, can be catastrophic. To be hacked and have millions
syphoned out of your customers’ accounts is one thing, but to have the government
ready and willing to fine you for failing various KYC tests can be just as
damaging. Can you say “Loss of reputation and customers?”
A WORLDWIDE PROBLEM
notably non-compliant of late have been banks based or doing business in
India, but it’s a worldwide problem. A New York-based broker-dealer recently was
charged with KYC violations and for negligently allowing illegal trading by
one of its customers. Perhaps the highest profile case most recently was Morgan Stanley Smith Barney running afoul of a variety of KYC violations. The main
charge: Morgan Stanley failed to properly identify an assortment of “red flags”
that signaled illegal activity.
Thankfully, technological breakthroughs increasingly
are offering their own solutions. Just as the digital world has enabled bad
players and victimized banks worldwide, technology is fighting back with
sophisticated Know Your Customer tools.
A big step forward is the ability to accurately verify
names and addresses. In a global world without borders, technology that verifies, cleans, completes and standardizes names, addresses,
phone numbers and emails, and does so globally, immensely aids the process of
knowing one’s customers.
Technologies also exist that adds in missing contact
fields, finds census and area-specific statistical details, and provides precise
demographic information. When banks are able to combine census and
area-specific details with accurate names and addresses, they’ll know pretty
closely if a variant player is really a customer or a bad guy.
KYC guidelines are very specific about risky areas
prone to scams and schemes. A wide variety of countries are identified by the U.S. State Department for
being prone to ignoring money laundering, tolerating suspicious transactions, and
generally lacking adequate know-your-customer requirements. Ignoring this, in
fact, was one of the issues that burned Morgan Stanley, permitting criminal
activities to continue unchecked.
While IP lookup that identifies exactly where a digital communication has
come from has been around for a while, new geocoding breakthroughs are able to convert IP addresses into precise latitude and
longitude coordinates around the world. Most European and international
identify cards also can be verified, along with mobile phone numbers and
driver’s license information.
One of the essential elements in all this is
updating customer data. It’s been estimated that accurate contact information deteriorates severely and regularly, and good customers who merely
move across town can confuse inadequate screening processes and raise red flags
(false positives) when it shouldn’t. Today there are a variety of modules banks
can use to update customer information quickly and accurately.
The bottom line is this: Financial services
institutions now have lots of new reasons to love fintech technology that
mitigates KYC concerns by identifying legitimate customers, and flagging the ne’er-do-wells
before they can be effective.