bankingciooutlook

Bridging the Missing Link to Banking Excellence

By Kevin Guenthner, CIO, Stockman Bank of Montana

Kevin Guenthner, CIO, Stockman Bank of Montana

What an exciting time to be technology professional in the financial service sector. With customers continually increasing their demands and competitors becoming dynamic and diverse, there are ample opportunities for technology professional to lead optimization, transformation and innovation efforts. AI, SDWAN, IoT, ML, and UX are all possible tasty ingredients for our technology alphabet soup and could easily fulfill our appetite. While many technology professionals could enjoy that soup as prepared, us in the financial services sector also must add ingredients to meet the tastes of the other at our table. Regulators, risk managers and business leaders want to make sure we add BSA, AML, KYC and other less sweet ingredients to the mix and our failure to do so could keep up from eating at all.

"As IT leaders, we are often in a position to see commonalities among varied business stakeholders’ information and technology needs"

It all started in 1970 when the government initiated it war on drugs and passed the Currency and Foreign Transactions Reporting Act, or BSA as it is commonly known. The premise was that making it difficult for traffickers to hide and lauder drug proceeds would inhibit their ability to ply their trade. Over the last few decades the government would add to the original requirements with the USA Patriot Act of 2001 solidifying the need for Customer Information Program (CIP) and Customer Due Diligence (CDD) to be the cornerstones of a bank’s Know Your Customer programs.

Large and small banks alike, struggled to find ways to comply with these regulations and the cost of compliance has continued to rise as requirements have become more intense. Large banks had the scale and resources to leverage technology more proactively address these challenges. However, community banks focused on implementing new manual procedures to their account origination and monitoring processes. As the regulatory oversight deepened many community banks looked to third-party service providers to supplement manual compliance efforts.

If you are a typical community bank today, your KYC program is comprised a myriad of inconsistent manual tasks; utilizing a number of AML specific tools; spread across numerous siloed business units and products. In other words, a patchwork of activities loosely strung together. While the vast majority of these institutions have been able to meet regulatory expectations, the weight of continued compliance has begun to stress scarce human resources and, more importantly, degrade the customer experience. Hardly a community bank gathering goes by today without a robust discussion about how complying with BSA, AML and KYC requirements have impacted their organizations. Recent beneficial ownership requirements only have intensified these discussions.

While there likely not a magic cure for these regulatory woes, I wonder if our propensity to focus on KYC and other regulations as separate and distinct from the rest of the business impairs our ability to identify synergies that can be leveraged to improve the overall business. Rather than talking about business opportunities and strategic initiatives in one room, while a different group discusses how to comply in another room, maybe a more integrated approach would be more beneficial.

As IT leaders, we are often in a position to see commonalities among varied business stakeholders’ information and technology needs. Stripped down to its bare essentials, the information and technology competencies required to support an organization’s burdensome KYC processes aren’t all that much different than those required for community banks to successfully meet today strategic business challenges.

Integration

Customers interact with the bank in a variety of ways which often leads to inconsistent data and redundant processes. For instance, a customer service rep may have to utilize several systems to verify a new customer’s identity, record required information or build the new account. Ths results in a less than desirable customer experience. Real-time integration would not only improve this experience but could be leveraged across the organization to consolidate customer information, improve data quality and efficiency. Perhaps more importantly, a strong integration architecture can allow an organization to adapt to change, compliance or business related, in timelier fashion.

Data Analytics

KYC requires we understand our customers and note behaviors that seem contrary to their established norms. Have the capability to capture and analyze transactional history is essential in identifying unusual activity. Such analysis can also be leveraged as the marketing department attempt to develop more relevant products or business analyst attempt to predict customer attrition.

Process Automation

Over time, most banks have implemented processes on top of processes to address the increased KYC related requirements. Most of these likely manual and singularly focused. Automation tools could greatly reduce time required to perform these processes, while improving accuracy and control along the way. Such automation tools could be leveraged in just about every area of the bank where business process improvement opportunities abound.

Compliance will always be a challenge to any organization, how they handle that challenge can be directly influence by how prepared IT is provide leadership. IT leaders who develop and leverage the competencies noted above and demonstrate how they can also make a strategic impact will be valuable business partners.

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