Automating KYC/AML Processes in Risk and Compliance

Automating KYC/AML Processes in Risk and Compliance

  • Murali Menon
  • August 3, 2021
Category: Machine Learning, Intelligent Automation, AI

While compliance has always taken precedence for financial institutions and businesses, an increasingly stringent regulatory environment has redefined compliance concerns for the banking industry. According to a recent Everest Group report, the burden of daily regulatory updates for major banks has risen to more than 200 a day from just 10 a day since 2004. Technology is largely responsible, as the sophistication of financial hacking grows but also, the inevitable nature of human error creates significant compliance challenges, particularly when multiple teams are involved in an underwriting process.

The role of automation is arguably necessary to address not only frequent, but constant, changes to regulatory requirements today. For banks, automation is the one-stop solution, not only addressing frequent changes to regulatory requirements but addressing issues with the manual verification process and reduces the costs of operations. What larger processes can be automated to effectively target these challenges?

Defining KYC and AML

Know Your Customer (KYC) stands for a set of processes often implemented with different tools and software to verify customers, their risk and financial profiles. Anti-Money Laundering (AML) refers to the laws, regulations and procedures intended to prevent criminals from disguising illegally obtained funds as legitimate income. KYC and AML are manual processes that identify and verify the client's identity when opening an account, applying for a loan, or investing in stocks and are carried out periodically over time for existing customers. These checks, mandated by the regulatory agencies, are subject to more scrutiny than ever before and place a growing burden on financial institutions.


Automating KYC and AML as much as possible is not just a smart approach to addressing compliance issues in banking, but a common sense one. Why?

A 2019 study by Know Your Customer, revealed that 37% of surveyed compliance professionals still relied on a ‘fully manual” or “mostly manual” customer onboarding process. While 29% of the respondents described their KYC procedures as 50% automated and 50% manual.


Using RPA bots and third-party APIs, basic customer data can be collected and collated, which allows banks to create a basic customer profile, collect documents, and extract key data more efficiently, easily and most importantly, accurately. Once banks embrace this automation, further steps can be taken, like performing basic due diligence checks like COGs, SAMs, CAIVRS, or even address verification, or even basic credit checks. All of these processes can all be automated and presented back to the reviewer to make decisions. Once the organization realizes the significant benefits of this level of automation, the next step is to automate the scoring of risk as part of the underwriting process.

This table shows a sample set of activities that can be automated in the area KYC and AML. While the number of tasks listed may seem daunting, automation of these functions doesn’t need to take the path of “big banks,” but is often best executed in a step-by-step approach.


The Role of AI and ML in Automating KYC and AML

With the help of AI and ML we can now automate a greater number of these tasks than ever before. AI and ML can also be used to:

  • Extract data from disparate documents like bank statements and tax documents
  • Generate analytics for underwriters to review and score risk
  • Using intelligent pattern recognition models, banks can monitor transactions to identify potential money laundering activities
  • Bots can watch social media or other public domain information and provide alerts for suspicious customer activity

The list is long and growing, the table shows the areas where Intelligent Automation potential lies.


In the coming years, AI and ML will become synonymous with the automation of KYC and AML processes. Given the evolving regulatory landscape, buyer expectations and more competitors in the space, transforming compliance programs for banks relies on automation adoption. It not only provides safety and security in the face of unforeseen environmental and public health events that we’ve seen recently, it goes further to protect banks from exposure to regulatory threats and financial crime.