KYC Screening Private Banks: The Sharp Edge of the Mountain

A highly respected former boss of mine, who was a prominent British Army Intelligence analyst in his past life and an avid mountaineer in his free time, used the term ‘sharp side of the mountain’ to describe the most challenging aspect of a situation.

I would contend that private banking Know Your Customer (KYC) falls into that category. In this article, I will explore why this is the case and how cutting-edge technologies are revolutionising risk monitoring.

The challenges of KYC screening in private banking 

Private banks operate in a unique space where the pursuit of profitable opportunities intersects with heightened risk profiles. If regulated entities are mandated to adopt a risk-based approach, certain clients targeted by private banks will likely fall into the higher-risk category. 

First, these banks often explore opportunities in emerging and frontier wealth markets, which, despite their potential, inherently carry perceived risks. Second, the sums of money involved can be significant. Third, the investment products sought by these clients may carry more risk, compared to traditional investment products. Consequently, these banks must conduct rigorous due diligence during onboarding, surpassing the risk assessments typical of mainstream financial institutions.

Considering both intrinsic and extrinsic risks

Certainly, private banks are concerned about the typical risk factors such as: is the person on a sanctions list or watchlist, or is there any significant negative media coverage about them? However, at smartKYC, we also consider toxic associations as a form of adverse risk—a connection to an organisation, theme, or even ideology that might not align with the bank’s risk policy or values. In our opinion, these all constitute intrinsic risks. 

What’s more, private banks often consider other factors as well, known as extrinsic risks. Even if the target client doesn’t have any intrinsic risks, other intelligence, such as their journey to wealth, their lifestyle, or their network, might raise red flags. These may not be reasons to end the relationship entirely, but they could be enough to rate them as a higher risk than they would be otherwise, and therefore to place them on a shorter re-screening cycle.

Addressing the challenges of re-screening for enhanced due diligence

1. Avoid repetition

At the heart of smartKYC’s value proposition lies its ability to streamline the re-screening process. Traditional methods often struggle to differentiate between genuinely new information and reiterations of previously known data, especially in news monitoring, as it is inherently repetitive. 

For example, though there might be a new, seemingly innocuous mention of Person X, if the same passage also mentions that ‘in 2020 they were acquitted of tax evasion charges,’ most adverse media search tools will present this as new information.

However, if Person X had been onboarded using smartKYC, this information would not have been flagged as a new risk during a refresh, because the tax evasion charge would have already been presented to the analyst and established as a known fact. Therefore, no new alert would be necessary.

This nuance is incredibly important when your customer base numbers in the hundreds of thousands or more and adverse media is important to you.

Unlike other adverse media tools, by leveraging advanced algorithms, smartKYC ensures that pertinent updates are accurately flagged, allowing analysts to focus on genuine risks rather than redundant information.

2. Distinguish between controversies and legal issues

When conducting adverse media monitoring, it is essential to differentiate between legal issues and controversies. While controversies may not necessarily imply legal wrongdoing, they can still adversely affect an organisation’s reputation. 

In the past, adverse media screening was relatively straightforward. However, with the introduction of anti-money laundering regulations, institutions must now consider a broader context beyond legal matters. For instance, when Adidas severed ties with Kanye West due to his anti-Semitic remarks, it sparked a controversy. Notably, West did not commit a crime, but his behaviour deemed him as a toxic association, leading to his removal by JPMorgan Chase. Given that financial institutions now factor in such considerations when making decisions, it is crucial to monitor both legal issues and controversies effectively.

3. Eliminate false positives

One of the challenges in KYC is disambiguating hits to ensure they are relevant to the client in question. smartKYC employs sophisticated disambiguation techniques, parsing through vast datasets to identify unique attributes and distinguish between individuals with similar names or backgrounds.

4. Address multilingual challenges

Private banking operates on a global scale, necessitating proficiency in multiple languages for effective risk management. smartKYC’s adaptable technology facilitates seamless language integration, enabling comprehensive monitoring across diverse linguistic landscapes.

Moving towards perpetual adverse media monitoring

The evolving risk landscape demands continuous vigilance, transcending periodic refresh cycles. Perpetual adverse media monitoring represents the pinnacle of risk management, the peak of the mountain, if you will. 

But with so many millions of news items generated every day, from thousands of sources and in multiple languages, how can you be sure to receive need-to-know alerts rather than irrelevant noise?

Overcoming these challenges of repetition, irrelevance, ‘noise’ and multiple languages in adverse media screening, requires sophisticated tools. Our white paper [INSERT LINK], originally published in Money Laundering Bulletin as Eyes Always Open, delves into this topic and provides 10 best practices for perpetual adverse media monitoring.

Discover real-time risk monitoring, tailored to your risk-based approach

smartKYC’s latest product smartEYE, provides a customizable platform that empowers institutions to stay ahead of emerging threats, providing real-time insights into evolving risk profiles. Unlike other KYC products, smartEYE:

  • Watches the world’s news and social media commentary in real-time, 24/7 to deliver precise risk alerts as soon as they are reported.
  • Carries out automated news analysis ensuring alerts are risk-classified according to your risk framework, are specific to your client, and contain new (rather than repeat) information.
  • Is truly multi-lingual so you can be as confident of your adverse media monitoring in languages such as Russian, Arabic or Chinese, as you are in English. 

With smartEYE, banks get risk-relevant, real-time alerts that allow them to act decisively and quickly. Compliance teams no longer have to wait for a periodic refresh cycle. Instead, they receive adverse media trigger events in the form of precise alerts, as that news breaks. smartEYE represents the ultimate solution for perpetual KYC risk monitoring.

See this process in action by booking a demo

In the evolving landscape of private banking KYC, staying ahead requires not just vigilance but innovation. As regulatory scrutiny intensifies and client expectations evolve, smartKYC emerges as a trusted ally, offering tailored solutions to mitigate risk and drive sustainable growth. By embracing cutting-edge technologies and adopting a proactive approach to compliance, financial institutions can conquer the sharp side of the mountain and navigate the path to success with confidence.

Learn more at smartKYC.com

This article was originally published on Wealth Briefing.