KYC in Practice: Balancing Regulation, Risk and Client Experience

The Ongoing Challenge of KYC

Know Your Client (KYC) is a cornerstone of regulatory compliance for financial institutions (FIs), required both at onboarding and throughout the client lifecycle. It encompasses two key regulatory frameworks: Client Due Diligence (CDD) and Anti-Money Laundering (AML). These requirements are shaped by the jurisdiction of the FI, client entity and product offering, making KYC a complex, multi-layered process.

Some examples of what can drive complexity:

• Local Requirements: Some countries, such as Luxembourg, impose additional documentation standards beyond global norms.
• Enhanced Due Diligence (EDD): High-risk clients—such as Politically Exposed Persons (PEPs) or businesses with heavy cash transactions—may require deeper scrutiny, including disclosure of beneficial ownership and, in some cases, submission of personal identification such as a passport.

For C-suite executives and FI risk and compliance teams, the financial and reputational risks associated with KYC non-compliance are top of mind. The cost of maintaining compliance, especially when systems are siloed and processes are manual, is substantial and growing. Most FIs rely on multiple, disconnected technology platforms to manage KYC activities across CDD/EDD data repositories, transaction monitoring systems, document collection tools, screening tools and more. These systems often do not communicate with one another, creating a fragmented ecosystem that demands significant manual effort to reconcile. 

Core Components of KYC

1. CDD & EDD focus on understanding the client and their financial behavior. CDD overall covers the following:

• Client Identity & Location: Who is the client and where are they established?
• Beneficial Ownership: Who owns the accounts and where are they located?
• Account Details: What accounts exist and how are they funded?
• Adverse Media: Are there any negative news flags on the client or owners?

EDD applies additional scrutiny to high-risk clients such as:

• PEPs
• Cash-intensive businesses
• Clients in jurisdictions with local requirements (e.g., Luxembourg)

2. AML focuses on transactional risk and fund sourcing, including:

• Cash flow analysis: Are funds largely cash-based? What currencies are involved?
• Asset types: Does the account hold digital or alternative assets?
• Transaction patterns: What is the client’s typical and expected activity?

3. Adverse Media & Sanctions Screening involve monitoring for negative news and potential sanctions risks, such as:

• Beneficial owner backgrounds
• Associations with sanctioned entities
• Client activities and jurisdictional risks

4. Predictive Account Activity focuses on understanding future behavior as key to risk management, namely:

• Planned transactions
• Fund movement patterns
• Expected daily/weekly/monthly activity

From CRO to Committee: The Hidden Costs of Fragmented KYC Oversight

Each client relationship is ultimately overseen by a Client Risk Officer (CRO), who is usually the relationship manager assigned to the client. The CRO often relies on multiples stakeholders, including associate or assistant relationship managers, risk and compliance teams as well as operational admin teams for critical KYC information.  As mentioned, the CDD, EDD and AML activity is usually stored in disparate systems, so there may not be single dashboards or proactive alerts that trigger suspicious activity or change in status to the CRO. Since these systems typically are not integrated or “pushing” information/flags to the CRO, the KYC process creates inefficiencies, and the ecosystem can increase the risk of missed information and regulatory fines. Therefore, FIs usually add “4-eyed” or even “6-eyed” operational human checks to ensure data consistency across systems and continuous systems monitoring.

Internal and Client-Side Complexity

KYC poses challenges not only for FIs, but also for clients, due to a variety of factors including:

• Functionalized Processes: Internal teams may duplicate data requests due to siloed systems.
• Extended Timelines: Gathering EDD and local documentation can take weeks or months.
• Delayed Profitability: Onboarding timelines vary:
• 2–3 months for non-complex domestic clients
• 1–2 years for complex global clients with multiple asset types

The AMLOC Bottleneck: When Risk Review Becomes a Roadblock

In addition to standard CDD and EDD requirements, high-risk clients—such as PEPs, cash-intensive businesses and foreign banks operating outside the FI’s jurisdiction—typically require review by an Anti-Money Laundering Operating Committee (AMLOC). These committees are designed to assess elevated risk profiles and ensure regulatory compliance before onboarding proceeds.

How AMLOC reviews work

• Standard cadence: Most AMLOCs convene monthly to review flagged clients.
• Ad hoc escalation: For urgent or high-risk onboarding, members may be called together outside of the regular schedule.
• Review scope: AMLOCs evaluate risk factors such as source of funds, jurisdictional exposure and client structure.

While intended to be thorough, a blanket approach to reviewing all businesses can lead to AMLOCs being overused. This results in increased operational costs due to unnecessary resource allocation, delayed onboarding times frustrating both clients and internal teams, and strategic misalignment-   often ultimately culminating in the acceptance of the business.

Periodic Reviews and Ongoing Monitoring

KYC is not a one-time activity. FIs must conduct periodic reviews based on client risk level: typically, annually for high risk, every 3 years for medium risk and 5 years, or monitored via automated triggers, for low risk. Some FIs are moving to a more automated practice, using event-based triggers and predictive analytics through internal and external data sources to build alerts/flags within internal systems to “push” KYC information to a centralized client risk profile. This is a fairly new practice but is proving to be less expensive than reviewing every client annually.

Cost and risk reduction for FIs can be achieved through automated on-going monitoring, using a series of event-based triggers/alerts, including:

• Systematic built triggers
• Screening and adverse media triggers
• Transaction monitoring alerts
• Fraud monitoring alerts
• Changes in ownership or related party information

Prioritizing What Matters in KYC

A significant majority, roughly 80–90%, of clients within most FIs fall into medium and low-risk categories. By leveraging predictive analytics and event-based triggers, institutions can:

• Reduce annual operational costs
• Minimize unnecessary client outreach and internal noise
• Enable risk and compliance teams to focus on truly high-risk relationships
• Enhance the overall client experience

This risk-based approach not only enhances compliance efficiency, but also supports faster, smarter decision-making across the client lifecycle. Learn how NICE Actimize KYC solutions can help.