In this blog, I look at the growing requirement for operational flexibility in banking, and at a specific KYC initiative from Capgemini aimed at addressing this.

Industry trends

Financial institutions and regulators are increasing their financial crime and compliance (FCC) activities for three reasons:

• The failure of Silicon Valley Bank (SVB), which highlighted the risk of balance sheets with asset/liability mismatches and liquidity risk
• The growing industry-wide expectation of a recession and/or market decline
• An ongoing increase in cyberattacks and fraud perpetrated by increasingly sophisticated actors
• A growing body of compliance regulations from many governmental entities across the world.

Industry trends toward cloud delivery, open banking, and financial product innovation (e.g., crypto) are driving the industry toward greater exposure to financial crime risks. Regulators in each country take a custom view on regulations. Collectively, regulators are raising the bar to demand a proactive response to real-time changes in customer risk assessment. Crypto enforcement in the U.S. is becoming more business-friendly, while the European Union has moved forward with comprehensive regulations aiming for tighter oversight.  

As a result of these industry trends, financial institutions will need to transition from the current, heavily manual processes conducted primarily during customer onboarding to highly automated processing conducted continuously and based on a much broader range of data inputs.

Capgemini launches pKYC Sandbox

Capgemini acquired Exiger in October 2023, which accelerated the development of Capgemini’s Financial Crime Compliance offerings. Exiger was founded to oversee the monitoring of HSBC’s AML regulatory action. Capgemini has been appointed on the FCA skilled person panel as a result of the novation of a slot previously held by Exiger FCC to Capgemini. Its capabilities and direct regulatory participation led Capgemini to develop an offering that enhances Know Your Customer (KYC) automation, supporting clients with additional managed services. This enables them to customize their KYC activities while increasing operational flexibility.

Capgemini has developed an offering to address these challenges. Launched in April, pKYC Sandbox enables financial institutions to improve their KYC operations in four areas:

• Data sourcing and management: expanding the range of data sources, both public and private; applying the client’s taxonomy to the data; tracking and analyzing the data over time
• Event and materiality detection: identifying data changes at frequent intervals; applying a KYC/AML risk management policy to data changes; creating and using materiality triggers to the data 
• AI and GenAI capabilities: employing AI, ML, and GenAI to create automated alerts, build KYC profiles, and validate documentation
• Enhanced workforce management: scaling KYC/AML alert generation and profile creation using AI and GenAI rather than labor; providing right-shoring services to scale manual labor cost-effectively. 

The pKYC Sandbox enables each financial institution to transition from static KYC to trigger-based KYC in a manner tailored to meet its specific business requirements. The sandbox enables the bank to evaluate new technologies and procedures in a standalone environment, mitigating the risk of compliance failures or customer data breaches.

Capgemini has partnered with RegTechs and hyperscalers, including Encompass, Quantexa, WokFusion, Pega, and Google, to develop this offering. Capgemini has partnered with Microsoft to create the industry's first use case for AI-led Know Your Customer (KYC) transformation. Microsoft technology provides:

• Ability to efficiently source data from internal and external providers
• Multi-agent workflows with Azure AI Foundry to digitalize worker tasks
• Structured and unstructured document analysis and data capture using models from Azure AI Model Catalog and Power Platform AI Builder
• Copilot agents integrated into the processing stream
• Data-based risk assessment and reviews, eliminating multi-level QC processes.

Capgemini says the benefits of this offering include:

• First-year cost savings of 10-15%, increasing to 50% per year by year three
• Ability to customize by geography and LOB
• Ability to scale operations non-linearly due to increased process automation
• Creation of a golden source of KYC records
• Consistent execution with transparency to regulators
• Flexibility to adapt to new regulatory requirements.

Summary

Over the past five years, there has been a rapid increase in KYC/AML regulatory requirements worldwide. Financial institutions are struggling to keep pace with the rising costs of compliance. Capgemini has developed a customizable offering that leverages Microsoft AI and GenAI to deliver automated KYC assessments while maintaining visibility into the procedures used to create those assessments. As part of the service, BPS services are provided from right shore centers to deliver the retained manual processes cost-effectively. This enables banks to adapt their KYC operations to meet new regulations and changing business volumes.