Artificial Intelligence in KYC-AML: Enabling the Next Level of Operational Efficiency

by Arin Ray,  Neil Katkov, PhD, August 23, 2016
Industry Trends
Global

Abstract

Regulatory scrutiny and growing cost pressures are severely impacting KYC-AML operations of financial institutions. Artificial intelligence-enabled solutions could mitigate current challenges, increase efficiency, and reduce costs.

In the report Artificial Intelligence in KYC-AML: Enabling the Next Level of Operational Efficiency, Celent discusses several challenges plaguing financial institutions’ Know Your Customer (KYC) and Anti-Money Laundering (AML) operations, and proposes how Artificial Intelligence (AI) enabled solutions can mitigate the challenges.

Discussions with several banks have revealed they are finding it hard to keep track of constantly evolving regulations, interpret and implement global regulatory changes at a local operational level, collect and refresh information from numerous sources and systems across different businesses and jurisdictions, manage and analyze growing volumes of structured and unstructured data to identify patterns, networks, and beneficial owners, while containing costs amidst a difficult economic environment. The size of bank compliance divisions has been steadily increasing, but hiring more staff may not be the most efficient way to address regulatory and business challenges.

“Traditional rule-based KYC-AML technology necessitates significant dependence on manual efforts particularly in alert investigation stage, which is costly, error prone, and inefficient,” says Arin Ray, an analyst with Celent’s Securities & Investments practice and coauthor of the report, “AI-enabled solutions can not only automate significant parts of operations but also offer superior insights through advanced capabilities for analyzing structured and unstructured data.”

“Banks across the board have expressed interest in exploring and adopting AI solutions in KYC-AML, and are looking to better understand their impact on existing infrastructure,” says Neil Katkov, PhD, Senior Vice President, Asia for Celent and coauthor of the report. “We expect large global banks with high volume and operational complexity to lead industry adoption of AI solutions in the near term.”

This report was commissioned by NextAngles, an Mphasis Fintech venture, while Celent kept full editorial control. The report begins with a discussion on the current state of KYC-AML operations at banks and other financial institutions. We then discuss the key operational challenges, followed by how new and innovative solutions leveraging AI capabilities can help in addressing the challenges faced by banks. The report concludes with a discussion on Celent’s views about the future evolution of operational practices in KYC-AML.

Celent is a research and advisory firm dedicated to helping financial institutions formulate comprehensive business and technology strategies. Celent publishes reports identifying trends and best practices in financial services technology and conducts consulting engagements for financial institutions looking to use technology to enhance existing business processes or launch new business strategies. With a team of internationally based analysts, Celent is uniquely positioned to offer strategic advice and market insights on a global basis. Celent is a member of the Oliver Wyman Group, which is a wholly-owned operating unit of Marsh & McLennan Companies [NYSE: MMC].

Media Contacts

North America
Michele Pace
mpace@celent.com
Tel: +1 212 345 1366

Europe (London)
Chris Williams
cwilliams@celent.com
Tel: +44 (0)782 448 3336

Asia (Tokyo)
Yumi Nagaoka
ynagaoka@celent.com
Tel.: +81 3 3500 3023

Table of Contents

Executive Summary

1

Introduction

3

Current State of KYC-AML Operations

4

 

Key Components

4

 

Resource Requirements

5

Operational Challenges in KYC-AML

9

 

Information Collection

10

 

Data Ingestion and Enrichment

11

 

Monitoring

11

 

Alert Investigation

12

 

Case Management and Reporting

12

 

Policy Definition and Implementation

13

 

Advanced Analytics

14

Artificial Intelligence in KYC-AML

15

 

Using AI in KYC-AML

15

 

Current State of Adoption and Future Prospects

17

Conclusion

19

Background

20

Leveraging Celent’s Expertise

21

 

Support for Financial Institutions

21

 

Support for Vendors

21

Related Celent Research

22

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