Improving the KYC Data Foundation to Enhance KYC Operations

The Know Your Customer (KYC) market has evolved over the years, driven by increasing regulatory complexity and a push toward digitization. As a result, many financial institutions have expanded their KYC teams and adopted Client Lifecycle Management (CLM) software at higher rates.

CLM software solutions have become central to many banks’ strategies for streamlining KYC compliance processes. These tools are designed to simplify customer onboarding, capture data, and track the lifecycle of client relationships.

However, despite their advantages, CLM solutions are not a catch-all for addressing banks’ data and entity management challenges, particularly in the complex realm of KYC compliance. Below, we explore why CLM software alone cannot solve these issues and how improving the KYC data foundation can strengthen KYC operations when integrated with a CLM.

Here’s why relying solely on CLM software falls short—and how a stronger KYC data foundation can transform your compliance process.

Overcoming data hurdles in KYC compliance

At the heart of KYC compliance lies data management, an area in which banks face significant challenges. CLM systems can certainly collect, store, and manage large volumes of client data for you, but they are not immune to the inherent issues surrounding data quality, consistency, and accuracy.

One of the primary limitations of CLM solutions is their dependency on the quality of the data entered into the system. If your data is incomplete, inconsistent, or outdated—whether from clients, external databases, or third-party sources—the system cannot address the underlying issues. For example, in KYC, banks must verify a customer’s identity and assess their risk profile. Imagine the data you use for verification is erroneous—such as misspelled names, incorrect addresses, or outdated identification documents—your CLM system may not flag these errors until they cause significant compliance issues.

Many financial institutions also have a wealth of internal data that they are not effectively leveraging, which slows down onboarding and creates additional customer friction. For example, if you don't recognize that a customer applying for a new product is already an existing customer elsewhere in the bank, or in a different geography, they may go through unnecessary re-onboarding, which can delay time to revenue.

Moreover, KYC data often requires continuous updates as clients’ personal and financial information change over time. While CLM systems can support periodic reviews, they don’t focus on identifying changes to a profile in an automated manner.

Tackling complex legal structures in KYC

Entity management is another critical issue in KYC compliance. This involves understanding and managing the structure of legal entities, including ownership, control, and beneficial ownership. While your CLM software can collect basic information about entities, it often struggles to manage complex corporate structures or accurately track changes in ownership, especially in cases involving multiple layers of subsidiaries, offshore holdings, or cross-border entities.

For instance, determining the beneficial owner of a company—someone who exercises ultimate control over an entity, even if they don’t appear in official records—can be extremely complex. CLM systems may not be able to effectively map these complex ownership structures or identify all entities within a corporate group, particularly when clients have opaque or convoluted ownership setups. This issue can be exacerbated in jurisdictions with lax reporting or where ownership information is not readily available.

Entity data is also subject to frequent changes. Shareholders may change, business structures may evolve, or new legal entities might be formed. CLM software may not automatically update these changes in real time, leaving banks at risk of non-compliance if outdated ownership information remains in the system. In some cases, you are still required to use manual intervention and human expertise to ensure full visibility and compliance.

Integration with external data sources

Effective KYC data and entity management requires you integrate with various third-party data sources, such as corporate registries, funds and equities datasets, global watchlists, and adverse media databases. While CLM systems may offer some integration capabilities, these are not always seamless or comprehensive. Most systems will provide a response from an API but require you to sift through multiple records to find the correct one. This can lead to situations where you might select an incorrect record or avoid using external data altogether due to lack of confidence or time.

A lack of robust integration with external systems can result in incomplete customer profiles, increased customer friction, missed risk indicators, and gaps in KYC compliance. Similarly, if your CLM system is not connected to local business registries or trade databases, it may miss vital information about a client’s legal status or business activities.

Unlock additional value in the client lifecycle

Addressing data management, entity management, and external data integration issues will help financial institutions improve KYC operations, enhance control frameworks, and reduce customer friction.

By better leveraging the data you already have available internally—connecting, organizing, and resolving your client data across business lines and geographies—you can make significant strides. Once your internal data is organized, it can be enriched with trusted, authoritative external data sources to ensure it is up-to-date and fill any gaps. The result is a cleaner, richer data set that can be used across your client lifecycle in an automated manner, reducing effort and friction. This effort can also help you identify and connect related customer records that traditional MDM processes cannot resolve due to system or bank-specific rules. Automatically identifying and connecting related customer records—without having to merge them—helps maintain awareness and enables compliance with KYC regulations at both the entity and individual levels.

Moreover, turning client onboarding into product onboarding by better leveraging available data improves the customer experience and accelerates time to revenue. For instance, understanding the owner or controller of a corporate client applying for wealth management products allows you to leverage available CIP data from the corporate record and verify related sources of income or wealth from the company. By building the client profile from publicly available data, banks can also reduce the need to chase customers for additional information.

Advanced entity management can also help you automatically build out corporate and ownership structures. This saves KYC operations staff time while ensuring completeness and minimizing risks. Complex ownership structures and shell companies can be used to obscure true ownership and control, but a holistic and automated approach ensures organizations can navigate the data and understand who truly benefits, even when ownership is distributed across many entities and subsidiaries.

Having a better grasp of data and entity management helps you build confidence as your organization considers moving toward continuous or perpetual KYC reviews. Shifting from manual periodic reviews to a data-driven, continuous KYC process—monitoring changes from internal, external, and behavioral data—ensures better alignment of resources and a constantly up-to-date KYC profile and risk rating.

Quantexa’s KYC foundation solution

Quantexa’s KYC Foundation Solution helps organizations enhance their KYC data foundation. Built on the Decision Intelligence Platform, it transforms the approach to KYC from onboarding to exit. Using advanced analytical capabilities such as Entity Resolution, it connects internal and external data points to provide a holistic customer view and dynamically assess customer risk. The KYC Foundation adds context and clarity to the process, enabling you to take a proactive approach to regulatory reviews of customer behaviors. It drives efficiencies, increases effectiveness, and improves your customer experience. Key outcomes and benefits include:

• Save time: Automatically connect internal and external customer data to enrich KYC profiles more effectively.

• Improve accuracy: Resolve disparate data sets for a holistic view of risk.

• Prioritize focus: Use scoring to assess relevant risks, focusing analysts on areas requiring judgment.

• Enhance the customer experience: Automate data gathering and minimize customer outreach efforts.

• Maximize output: Gain a broader view of customer and counterparty risk, pushing it to downstream systems for a more intelligent, proactive approach to real risk.

Enhancing KYC with strong data foundations

While Client Lifecycle Management software is an essential tool for improving the efficiency and organization of your KYC processes, it cannot fully address the challenges banks face with data and entity management. There are significant benefits to organizing data before leveraging it in a CLM or workflow solution. Improving the KYC data foundation enables greater efficiency, better risk identification, and a stronger control framework.

Ready to strengthen your KYC foundation? Get in touch to find out more.

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