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Customer Due Diligence in a Digital World

Exploring the Assumption that Systems will do all the Heavy Lifting

The rise of technology within the customer due diligence (CDD) space is evident. There has been a significant influx of regtech and fintech businesses offering innovative software solutions to age-old CDD problems. Moreover, the constant claims that artificial intelligence (AI), machine learning (ML), and automation can improve the CDD landscape are impossible to ignore. As more CDD problems are framed as potentially solvable through new technology, support frameworks sitting alongside the technology become necessary for it to be successfully implemented and achieve the goals it was set out to deliver.

According to professional services firm PwC, “it is a truism that technology is the future” for customer due diligence. They also suggest that, in many cases, the technology has arrived and the future is already here. So one could argue that digital in CDD is really trying to see if existing technologies can support the problems facing teams in the CDD space, rather than truly understanding the problem and then building technology that can resolve that problem.  

3 Catalysts for Customer Due Diligence Technology Change

They noted three key areas that are the catalysts for technology change. The first is access, as demands from institutions’ customers are getting increasingly more complex but they rely heavily on their already digitised lives. The second catalyst is reducing process time, given that CDD’s manual processes are a massive burden on time and resources. And the third is using technology to improve the consistency and quality of repetitive tasks within the CDD space.

So perhaps what digital in CDD really means is how quickly CDD teams and processes within CDD can take current technologies and adopt them to demonstrate meaningful change in performance. Looking at the core challenges these teams face and the inconsistency in levels of automation and digitisation across the profession, using technology to drive change appears the obvious choice.

Why Use Customer Due Diligence Tools

If we look at this from the lens of the operational and strategic objectives that drive business outcomes, teams need to do things faster with limited resources while using those resources in the best way possible. They need to find ways of managing their risk-based policies but meet the Service Level Agreements (SLA’s) they have, which are always extremely tight. Of course, everyone in the industry ultimately wants to provide a good experience for their internal and external customers.

Strategically and within the C-suite, organisations know they have to comply with regulations. But doing so without adding to their cost burden while also driving efficiencies to save time and money and ultimately be in a strong position to book client revenue quicker – these are the core areas that keep C-suite individuals awake at night.

What Problems Does Customer Due Diligence Software Solve?

Regtech and fintech headlines sometimes promote a sense that all can be fixed. But the overarching solution to all CDD problems does not yet exist. We believe it is vital to ask two very important questions:

  1. To which part of the process do you want to apply the concepts of “digital CDD”?
  2. What is the problem statement you are trying to resolve for? 

If you truly clarify what you are trying to do, and all stakeholders have the same view, it will save time. But not necessarily money, at least not instantly.  

Traditional tools and technology used in KYC-AML are not able to manage the increasing volume, speed of change, and variety of sources that could support CDD processes. We know teams managing false-positive remediation are getting more difficult to budget for as their workloads increase. But the digitisation of CDD, including AI, machine learning, and process automation, offers opportunities to improve efficiency and effectiveness of KYC-AML programs, and interesting use cases around managing media tagging via ML are coming to the forefront.

Top Considerations When Making CDD Technology Purchasing Decisions

If you are thinking about the digitizsation of your CDD process, our recommendations are as follows: 

  1. Set and manage realistic expectations of regtech and fintech solutions.
  2. Conduct a data audit to check the organisation’s readiness for a technology solution.
  3. Break down the process and look for digital tools to solve specific parts individually.
  4. Don’t forget the human element. Machines cannot do it alone, and the CDD expertise will be a critical success factor.

Watch our recorded webinar in collaboration with the International Compliance Association (ICA), where we discuss what digital means for CDD professionals and their organisations and explore the assumption that systems will do all the heavy lifting for you.

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