Q&A with Dermot Corrigan CEO of smartKYC

Q&A with Dermot Corrigan, CEO of smartKYC

Compliance units face growing pressures around Know-Your-Customer (KYC) verification and onboarding. From the outside, regulatory requirements are expanding and there is a heightened demand for supply chain transparency to demonstrate ESG compliance. From the inside, banks are trying to reduce costs involved in screening high volumes of entities. The solution lies in using technology and data to make the KYC process faster, more efficient, more accurate and less costly. We sat down with Dermot Corrigan, CEO of smartKYC, to find out more.

Tell us about technological solutions to KYC, and smartKYC in particular?

We support companies with AI technology to do due diligence checks and find out all they can about a company or individual as part of the KYC and onboarding process. The benefit is faster, better and more cost-effective KYC. smartKYC does these checks by harmonizing different data sources regardless of source, structure or means of access – we take that data and apply AI technologies like multilingual Natural Language Processing (NLP) to read every line of every document – watchlist, director and shareholder register, open web, media archive data and extract pertinent information about a specific company or individual with a high degree of precision.

What feedback have you had from companies so far?

We are at the point where technology can do a lot of what humans can in terms of reading information by picking out what is useful to know about a company or an individual anywhere in the world. This might be information on an individual’s relatives and close associates and their source of wealth and shareholdings. In other instances, it might be insight on a company’s Ultimate Beneficial Ownership (UBO), ESG risks and country footprint. smartKYC can tackle anything that would normally be part of a KYC check.

Why do companies need to improve their approach to KYC?

There is a lot of frustration with the way banks do KYC due diligence. It takes too long, it gives too many false positives, it is too manual and there is a lot of noise. There is no consistency or systematization for audit purposes and no batch processing. Clients come to us because they are looking to improve their processes.

Then there are regulatory drivers. The EU’s Sixth Anti-Money Laundering Directive is the latest incarnation of the EU’s financial crime legislation, and each iteration becomes more onerous in terms of what companies need to do. The latest requirement focuses on UBO and establishing that is a significant undertaking. Beyond money laundering there is legislation around bribery and corruption and modern slavery around the world and the regulation shows no sign of slowing.

We are also seeing that companies are more sensitive to understanding ESG risk in their supply chain. Businesses are looking at ESG from three angles: are my ESG credentials what they need to be? Are the investments we are making ESG compliant? Are the third parties we are dealing with (i.e. suppliers) ESG compliant?

What kind of customers are using your solution?

Most of our customers are financial institutions. We deal with private banks and wealth managers or corporate investment banks and retail banks - all at the larger end of the scale. They all tend to have an industrial scale KYC problem, a degree of complexity in their checks due to the nature of their client bases, and often a significant international element due to the footprint of their clients. They all want to automate this process because it is very labour-intensive and large banks employ hundreds if not thousands of people in KYC to perform what are very manual processes.

We also deal with corporates, often multinational that are looking at ESG risks in their supply chains the same way banks look for financial crime risks among their customers. We are recently also hearing from some of our banking KYC customers that they have recommended smartKYC’s solution to their colleagues in the impact investment team for evaluating their investment portfolios or loan books for ESG risk.

What challenges do they face around Anti-Money Laundering compliance?

In addition to the growing regulatory burden, the other issue is cost. Bank cost-income ratios have been squeezed over time, while KYC and compliance costs have gone up every year. So far, the answer has usually been to employ more people, but businesses are getting increasingly frustrated at giving blank checks to compliance every year. So, there is an appetite to look for efficiencies and for how technology can take up the slack.

How important is the quality of data going into your solution?

We are a technology layer so we rely on trustworthy content sources. We ask our clients which      sources they want to work with and there are three main buckets:

1) Publicly available information, through an open web search.

2) Professional resources such as LexisNexis’ media archive, its biographical data, its sanctions data      and more.

3) Private sources such as banks’ own blacklists.

How is media data used in your solution?

The LexisNexis archive can be used for all of our technology solutions and use cases. We apply NLP to the archive and smartKYC’s technology processes each article and picks out information about, for example, a person’s wealth, their connections, their activities as well as risks and controversies. News articles give us so much information, even on things like their hobbies, lifestyle and education. We then present this to clients in a report – exactly the same output as a consultancy would offer, except they would charge $10,000 for a dossier and we charge the price of a cup of coffee.

What is the importance of media data in particular?

There are two main benefits to using LexisNexis’ media archive:

1) A news archive which goes back 40 years is so valuable for onboarding and KYC. The alternative is Google which is not an archive but a current awareness tool – the risk therefore is you are blindsided to risks about a company which happened many years ago. Also companies can use the dark arts of Search Engine Optimisation to wash away bad news. Going back 40 years means the media archive picks up on that risk and we can get to that ground truth.

2) Nexis Solutions has curated and harvested excellent content in its news archive. This premium content includes every single publication by a given media outlet, which is critical information. LexisNexis has done its own due diligence on each media source, whereas there is a lack of authority in some of the sources a Google search produces.

What does the process involve for a company considering moving from a manual to an automated process?

The way banks think about this is in terms of policy, process and technology – in that order. They are reluctant to change financial crime policy and expect process and technology to fit appropriately, not to have to alter policy to accommodate technology.  But it does present an opportunity to rethink the process of KYC. One bank we are dealing has noted 60 different touch points in the KYC process which is massively inefficient and prone to error. Introducing smartKYC’s technology allows them to create one process in a consistent fashion.

We then have conversations with our customers around how they want smartKYC to be configured for their individual requirements. This includes, but is not limited to, how they want the risk scores to work, what countries and sectors are risky to them, what sources and confidence thresholds do they want to use. Then finally we reach the technology stage where we work with the customer to decide on hardware, databases, security requirements and so on. The whole process of implementing KYC automation can take anywhere between two and six months end-to-end depending on the degree of customization required.

What are the benefits of automating the KYC process for companies?

It can lead to faster, better and more cost-effective KYC. People working in KYC are under so much pressure to get their work done that compromises are naturally made along the way – they can’t read everything. It gives companies a level of comfort when we tell them the machine is doing the reading for them. They can then spend less time doing laborious research and more time making decisions.

It also enables them to automate post-onboarding processes like periodic refresh and to realise aspirations like perpetual KYC – not just continuous monitoring for changes to data but also, crucially, material changes that occur in news.

We know from a client in Asia that they have saved between 30 and 50% of the time it used to take to do KYC. If you are doing due diligence on a high-net-worth individual, it could take up to a day to look for the directorships and shareholdings they have, do an adverse media search, and check their legal record and relationships. smartKYC achieves that in 10 to 15 minutes and it’s only going to get better!

For more information about our due-diligence solutions, click here!