Why Customer Due Diligence will be AI-powered

Customer Due Diligence (CDD) plays a crucial role in financial crime compliance. It prevents organisations from inadvertently facilitating money laundering so they comply with KYC obligations and protect their reputation. But it involves more than asking a client to send over some identity documents and checking they’re all there.

Varying information needs to be collected

Gathering information for thorough due diligence is a complex process. It begins with collecting basic forms and documents from clients followed by subjecting this information to rigorous questioning in line with regulatory expectations. The outcome is a comprehensive risk profile that identifies any potential red flags related to financial crime.

No two individuals or companies pose the same level of risk. Customers considered higher risk require an even more thorough investigation called Enhanced Due Diligence (EDD). This additional layer is essential for uncovering more intricate risks, for example when they’re in a high-risk third country or politically exposed.

To get an idea of how much information is needed, here’s a typical Customer Due Diligence process.

Step 1: Collect customer information

Gather all necessary personal and business information: Identification documents (e.g., passport, driver’s licence), business documentation (e.g., incorporation documents, business licences), and information on the nature and purpose of the matter or business relationship.

Step 2: Screen against compliance datasets

Ensure the customer isn’t on government-issued sanctions lists or watchlists. Use government websites and international databases to screen the customer’s name and document your findings.

Step 3: Examine public records

Verify an entity’s information through publicly available sources: company filings and public registries for business verification and check legal databases for any litigation history that might involve its directors.

Step 4: Conduct open-source research

Do a web search and browse social media platforms and professional networking sites. Focus on finding adverse media, associations with controversial individuals or entities in the media, and give context to binary database answers.

Step 5: Create a risk profile and assign a risk score

Use the gathered information to determine their risk score and identify potential risk factors. Document the assessment and highlight any areas of concern that might need to be triaged.

That’s a lot of steps for one subject. When your organisation deals with hundreds or even thousands of subjects, it significantly slows down business intake and impacts revenue-generating capability.

Barriers to comprehensive Customer Due Diligence

There’s always the risk that organisations don’t measure up to regulatory expectations. The SRA clarified their expectations for Customer Due Diligence and completing risk assessments, while the FCA published a handbook on fighting financial crime risks.

In the past, compliance teams would rely on databases and curated lists to identify designated AML risks. However, this approach falls short of truly understanding the customer or third party. Moreover, these static sources aren’t dynamic enough for today’s business environment.

Analysts might then resort to a manual Google search, which drains time. With a surge in online publicly available data, the role of a research analyst has become more research than analysis. Many compliance teams just can’t afford comprehensive due diligence across the online public domain. But this depth of Customer Due diligence is being made possible with AI tools.  

The future is AI-powered customer due diligence

AI-powered due diligence tools are enhancing the research capabilities of compliance teams. These tools are adept at:

• Searching and analysing large volumes of information
• Drawing connections between lots of information like a human analyst
• Summarising the insights into a comprehensive yet concise report

Read more: From CDD to EDD: AI’s role in every level of due diligence

Xapien is an AI tool designed for due diligence. It not only expedites research but also significantly enhances operational efficiency and accuracy as it:

Gathers information on the correct subject only

Xapien distinguishes people and entities with similar names so that information is accurately matched to the correct individual or organisation. This mitigates the risk of gathering data on the wrong subject.

Never misses an important insight

Xapien finds everything there is to know. Its advanced algorithms ensure that every piece of relevant information on the indexed internet is found and analysed. This ensures that assessments are based on the most complete and recent information available.

Halves time spent on manual research

Manual research that took days can be done in minutes so compliance teams can get through KYC checks quicker. This time-saving time allows analysts to focus on more strategic aspects of their work.

Automates report generation

As well as data collection and analysis, Xapien writes fully sourced and regulatory-compliant reports. These reports aren’t just comprehensive but also structured in a manner that is easy to interpret, so other teams can quickly understand the findings and act on the recommendations.

Customer story: KaurMaxwell

Law firm KaurMaxwell needed a tool capable of conducting thorough web searches to enhance their KYC checks. While its lawyers already conducted PEPs and sanction checks, these sources are limited in scope. They needed more contextual information from the open web but didn’t have the resources to do it manually. You can listen to how they initially adopted Xapien for KYC before expanding into other facets of the firm here.