Can implementing classic management theories in the KYC process help achieve high regulatory compliance?

Sabina Ausfelt
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Sabina Ausfelt: Head of Financial Crime Prevention, JAK Medlemsbank, Sweden

Journal of Financial Compliance, 2022, vol. 6, issue 1, 17-29

Abstract: Banks and other financial institutions (FIs) today face completely different challenges than they did 20 years ago. Since the Fourth Money Laundering Directive (EU 2015/849) came into force in 2014, the aim was to counter money laundering and terrorist financing. FIs have had to change their priorities and spend large sums on regulatory compliance in this area. The legal requirements found in national legislations across the EU which are based on the implementation of the EU Money Laundering Directive and associated regulations, are one of the FIs biggest challenges today. The ‘know your customer’ (KYC) process is a costly and complicated process that includes administration and alternating contacts with the customer. The process places high demands on regulatory compliance as the KYC process is governed by national legislation, directives, and regulations. The requirement for a risk-based and holistic view on the money laundering and terrorist financing (ML/TF) risks also requires that the process adapts to the outside world. This is difficult for the middle and larger financial institutions to comply with without automation. Despite the complexity of the process, the literature review conducted by the author shows that the main research focus is on technology, cost efficiency and customer satisfaction. Only a few raise the issue from a compliance perspective, and even fewer highlight both technology and compliance in the same research. With research focused on developing strategies for enhanced customer satisfaction and cost and time efficiency, what strategies are there to succeed implementing a KYC process with all attributes above at the same time as it is fully compliant with regulations, ie risk-based and holistic? By applying and implementing classic management theories into the anti-money laundering regulatory control environment, the author believes that it is possible to have a KYC process that is cost and time effective, has a high level of customer satisfaction, and at the same time is highly compliant with AML/CTF regulations.

Keywords: KYC process; organisational learning; compliance; anti-money laundering; financial institution; AML/CTF (search for similar items in EconPapers)
JEL-codes: E5 G2 K2 (search for similar items in EconPapers)
Date: 2022
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