UK firms are spending the equivalent of £21k per hour on fighting financial crime (Lexis Nexis Compliance Report 2023). Despite this burgeoning cost which continues to rise, research indicates that it is at minimum 2.7 times more expensive to not comply with the requirements.
As companies grow, so do their compliance teams and costs. Therefore, it becomes more viable to outsource to a third-party solution who can provide the expertise and scale at a reduced cost point. When building KYC functions, businesses should consider their risk appetite along with guidance from Regulators. A proper balance between in-house compliance and outsourced solutions can significantly cut costs, whilst keeping the firm fully compliant with regulations and protected from fraud.
KYC (Know Your Customer) Outsourcing refers to the practice of engaging third-party service providers to handle the compliance processes related to customer verification and due diligence. By outsourcing KYC functions, firms can effectively cut costs and streamline their compliance operations.
Here are some benefits and strategies for KYC Outsourcing to reduce compliance costs:
Benefits of KYC Outsourcing:
- Cost Savings: Outsourcing can reduce the overhead costs associated with maintaining an in-house compliance team, including salaries, training and technology investments.
- Access to Expertise: Third-party providers often specialise in compliance and KYC processes, bringing expertise and best practices that can improve efficiency and accuracy.
- Scalability: Outsourcing allows firms to scale their KYC efforts up or down based on need without the fixed costs associated with a permanent in-house team.
- Technology Solutions: Many KYC outsourcing firms leverage advanced technology, such as artificial intelligence and machine learning, for data analysis and risk assessments, which can lead to better compliance outcomes.
- Focus on Core Business: By outsourcing KYC processes, firms can focus more on their core business activities, improving overall productivity and growth.
Whilst it’s true that firms create certain risks by sharing information with third parties, such risks can be minimised.
Risk Management Strategies
Despite the advantages, managing risks associated with outsourcing is essential.
Here are some strategies to minimise potential risks:
- Vendor Due Diligence: Conduct thorough assessments of potential outsourcing partners. Request details about certifications, audits and compliance history to ensure they meet regulatory standards and have a strong track record.
- Consolidation of Services: Choosing a single provider for multiple compliance services (like KYC and transaction monitoring) can streamline operations, improve integration and reduce the complexity of managing multiple vendors.
- Data Security and Compliance: Ensure that the outsourcing provider adheres to stringent data protection protocols. Contracts should include clauses that specify how customer data will be handled, stored and protected.
- Regular Audits and Reviews: Implement regular performance reviews and audits of the third-party vendor to ensure ongoing compliance and operational effectiveness.
Conclusion
KYC Outsourcing presents a valuable opportunity for firms of all sizes to manage compliance costs effectively whilst still adhering to the necessary regulatory requirements. By carefully selecting trusted partners and maintaining a balance between in-house oversight and outsourced solutions, firms can enhance their KYC capabilities and mitigate associated risks. This enables firms to not only comply with the regulations, but also focus on innovation and customer service in their core business areas.
Contact Complyport today to learn how our KYC/AML Compliance Managed Service can safeguard your organisation against financial crime and ensure regulatory peace of mind.
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