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Know Your Customer

KYC Case Study

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Central to our approach is understanding who is having the problem and how they will benefit from the solution.

Who is having the Problem?

Head of Client Services, CLM, FCR.

What do we assume about them?

Seeking for a steady/sustainable operation and enable a successful customer experience but is having to cope with constant disruptive changes due to regulatory. Subsequent to this, they have to navigate their ways internally through an often conflictive/unbalanced relationship between Compliance, Front Office, Operation and Technology.

Who will benefit from the solution?

Those in charge of the corrective plan (or remediation activities) in Client Services first then OPS, Compliance and Front Office.

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Before rushing to find a solution, pause and reflect on how much you really know about the problem.

 

Einstein once said, “If I had an hour to solve a problem I'd spend 55 minutes thinking about the problem and five minutes thinking about solutions.”

What is the problem about?

The overarching issue is due to client being always reactive to the problem and by the time a corrective plan is in action the issues have already worthened. The systematic issue is that the client operation is never fit for purposes (see (a), (b), (c), (d) reasons below) whilst the banks are often on aggressive business strategic acquisitions and merges.

Why not fit for purposes

  • (a) no AML/KYC sustainable control framework to cope with disruptive regulatory changes (Control: Process Monitoring, Resources, Training)

  • (b) tech solution in place is never fully operationalized into the client TOM so never provide expected full benefit realisation (to be pro-active to the regulatory change problem)

  • (c) data transformation isn't complete or hasn't started whilst process transformation has already kicked off (should be the other way around) this affect client experiences at onboarding stage and makes the overall Operational process transformation unsuitable

Client Services, CLM, FCR Operations are across Assets, at the forefront of Digital OPS transformation and is where all the wider organizational issues congregate.

Is there an actual/real problem?

Client don't know/have time to value employees' growth in these areas, only working in reaction.

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Understanding where and when the problem occurs can give us insights into the causes and triggers.

 

Find proof to test how real this problem is.

Where does it occur? What is the context?

FCA-issued S166 reports for Financial Crime matters and the volume of periodic refresh is rising sharply with several 100’s refresh and remediation programmes expected to run concurrently in the UK by Q4 2024. The recession is adding significant pressure to the resourcing challenge. It means the capacity to flex resources externally will now terminate and clients will only be able to hire permanently or go to big 4 for services (which means to capability retention).

What is the proof of the problem happening in a certain context or space?

FCA S166 reports issued for FCR matters each quarter is raising.

FCA Sectors Number of skilled person reports commissioned:

  • Retail Banking & Payments 6

  • Retail Lending 3

  • Retail Investments 2

  • General Insurance & Protection 2

  • Pensions Savings & Retirement Income 0

  • Investment Management 4

  • Wholesale Financial Markets 2

Total 19

 

These are split across functional activities.

Type of Activity (Known as LOT):

  • Controls & Risk Management Frameworks 8

  • Conduct of Business 4

  • Financial Crime 6

  • Prudential (Ops risk or wind downs) 1

 

Under the Financial Services and Markets Act, as amended by the 2012 Act, the FCA have the power to obtain a view from a third party (a ‘skilled person’) about aspects of a regulated firm's activities if they are concerned or want further analysis.

 

The FCA can commission two types of skilled person review:

  • s166 reports by skilled persons

  • s166A appointment of skilled person to collect and update information.

 

There are two possible approaches to appointing the skilled person firm. For each review the FCA decide which approach is the most appropriate:

  • The regulated firm puts forward its preferred choice of skilled person firm for FCA approval. Once approved, the firm contracts with the skilled person firm.

  • The FCA contract directly with a skilled person firm. If the FCA contract directly and appoint the skilled person firm, there will be an appropriate level of dialogue with the regulated firm during the appointment process and the review itself.

 

The FCA will conduct a tender process, where appropriate, to identify the most suitable skilled person firm, assessing technical capabilities, resources available, conflicts of interest and commercial aspects. The FCA rules enable us to require the regulated firm to pay the costs of such skilled person reviews as a fee.

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Having gathered your insights together, test with the problem owner how important this problem is. Where does it sit in their priorities? Is it really worth solving?

Why is it worth solving? Why care about it?

As it stands the current Market Opportunity for FDM is circa 200 million pounds revenue given 1x remediation activity is between 12 to 18 months and takes about 30 to 100 staff to execute. Big 4 are so heavily committed with no strategy to help clients retain a sustainable capability. There is a huge systematic opportunity for FDM to come to achieve sustainable growth in that space driving innovation from the bottom. We know how we can shape the different levels of services to help the client be more proactive to the problem whilst executing the corrective actions on the ground and we know how to value employee's growth. We know we can leverage and imbed all our streams in Financial Crime but we don't know yet what the framework is to link up transformational and operational work. With the recession coming I believe FCR is where to be pre-emptive.

What pain point would a solution help get rid of?

Move from reactive to become proactive to the problem by sharing the ownership of it with FDM.

What is the most important value for the user?

Depending whether Compliance, OPS, Tech or FO.

Why is it worth our client's investment? How does it meet their business goals/KPIs?

KPI's at the heart of CDD remediation it would meet their goals if we could demonstrate how much it would cost them to use FDM Vs cost of not changing their model.

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