How Much Money Is Spent on Regulation
Opening an account and using a bank’s services is as easy as ABC.
You simply walk into any bank with your documents — passport, id, proof of address, etc. — and your account will be ready that same day (or at least within a few days).
What most customers (if not all) fail to see are the ‘Know Your Customer (KYC)’ and ‘Anti-money Laundering (AML)’ processes going on behind the scenes. On the surface, financial institutions (FIs) and their staffs appear clean and smart, but that’s typically as far as customers’ evaluations go.
Stricter scrutiny
Since 9/11, governments have picked up the slack, becoming more concerned with which institutions own what data, and the source of that information. The financial industry specifically has experienced stricter and more thorough scrutiny, as reflected by the implementation of KYC.
KYC is a verification process that governments introduced to ensure FIs know their customers well enough. In KYC verification processes, customers are required to submit their personal data such name, birth date, residential address, and government issued ID. This information helps FIs monitor and regulate transactions performed by their customers.
In recent times, KYC has also hit the crypto space, an otherwise highly unregulated market.
Bludgeoning costs
Despite the importance of KYC, FIs are struggling to handle the process due to the ridiculous cost of the regulation.
Thomson Reuters’ 2016 global survey on the effect of global changes in ‘Know Your Customer’ regulation revealed that the average amount of money spent by FIs in KYC processes is about $60 million. The survey went on to report that some firms spend close to $500 million on KYC and Customer Due Diligence (CDD) compliance. Sounds alarming, right?
This is a tremendous sum of money for any financial firm to throw at compliance. And according to Thomson Reuters’ survey — which polled some 800 FIs — the cost of KYC is only further rising.
Time delay
These FIs and their customers also reported that the time necessary to complete KYC processes puts strain on client relations and onboarding efficiency.
The annual percentage increase on the time required for customer onboarding was up to 22 percent at the time of the survey. For some corporate respondents, this time period even exceeded two months!
Financial Institutions at risk
These KYC pain points — particularly the consistently rising costs — are threatening to collapse FIs. But how can we curb their damage?
Implementing any of the countless business management tools out there to streamline process would help, but many FIs rely on paperwork which involves manual processing… And leaves customers often frustrated.
It’s also worth noting that in the event an FI isn’t careful enough and breaks a regulatory law, the consequences are steep. In the US, for instance, banks were fined $5.2 billion between 2009 and 2015.
And just to confirm the growing strictness in rule enforcement: Over $15 billion in fines were levied between 2016 and January 2017.
Conclusion: The future lies with blockchain
FIs have grown to become the de-facto gatekeepers of verified identities. This however comes at a great cost. KYC processes are a growing problem: From dealing with archaic methods of data collation and storage to an ever-changing legislative landscape.
In order to effectively handle this, FIs are increasingly turning to FinTech and RegTech solutions. This opens the door to bringing blockchain onboard.
CLEARS is one such solution.
CLEARS is a data-less platform that leverages the power of blockchain encryption to provide seamless verification processes for FIs. With CLEARS, customers only need to submit their personal information once, which literally means a reduced number of required employees for the regulation process.
And, subsequently, it reduces the cost of regulation compliance for users and FIs alike.
About Clears
Clears aims to be the standard KYC in the rapidly growing ICOs, Fintech and Cryptocurrency marketplaces, expanding to serve all industries that require identity checks and KYC processing. We are confident that users will specifically request that Clears processes their KYCs due to its convenience and enhanced security.
Learn more at http://clea.rs/
Join us now!