Qifei Zeng
LSEG’s latest research unpacks the Know Your Customer Enhanced Due Diligence (KYC EDD) space and examines AI as a potential solution to rising costs and complexity – with one important caveat.
Our latest research[1] report takes an in-depth look at the current and future KYC EDD landscape and explores five important findings, concluding that AI can solve many persistent challenges – but that the key ingredient to minimising risk is human oversight.
The evolving regulatory landscape governing KYC EDD requires companies to fully understand the risks posed by each customer. When heightened money-laundering/terrorist financing risks are present, standard customer due diligence alone is not enough. This is where EDD steps into the gap and delivers comprehensive insights that inform defensible onboarding and transaction decisions. It is crucial that KYC EDD processes are both efficient and effective – and that they deliver a frictionless customer experience.
Global AML regulations require companies to adopt a risk-based approach to fully understanding the potential money laundering and terrorist financing risks posed by any customer.
Real-world insights: what did we find?
Our report focusses on five key findings:
- EDD requests are rising
A significant 90% of respondents say that the volume of EDD requests has risen over the last three years, a factor that has contributed to rising costs, which must be balanced with the quality of due diligence and the need to make customer onboarding and transaction decisions quickly and seamlessly.
- KYC EDD budgets are expected to increase
Most respondents (87%) expect KYC EDD budgets to rise over the next 12 months, with an average expected crease of 5.2%. This is aligns with the rising volumes of EDD requests reported, and highlights that there is likely to be an increased focus on KYC EDD for many organisations into 2025 and beyond.
- Volume and cost top the list of concerns
When asked about their biggest challenges relating to KYC EDD reporting, high volumes of EDD requests (cited by 43%) and the associated high costs (cited by 42%) emerge as the most prominent concerns. Moreover, respondents revealed a range of other challenges, including pressure to make customer onboarding decisions quickly.
- Sanctions, data privacy and crypto transactions are on the radar
In terms of the biggest challenges respondents expect in the future, increased global sanctions and watchlists (cited by 49%), rising customer privacy and data protection laws (cited by 48%) and the expansion of digital currencies and crypto transactions (cited by 43%) emerge as key hurdles.
- “Human-centric” AI is favoured
When considering human-driven and automated solutions, 58% of respondents believe that KYC EDD should be mostly or fully human driven, and 42% believe it should be either fully or mostly AI-automated. This suggests that a human-centric, AI-enriched approach to KYC EDD is favoured.
The inherent risk in any new technology, including AI, underscores the value of human oversight, which mitigates AI risks such as hallucinations and bias. Trusted human expertise is invaluable to ensure that adequate checks and balances are in place.
Whilst at first glance AI appears to offer an immediate solution, our key finding is that a human-centric, but AI-enriched approach to KYC EDD is favoured.
As costs and volumes continue to rise and regulators continue to mandate meticulous due diligence, organisations find themselves needing to “do more with less” to maintain a defensible AML/KYC programmes. Harnessing the power of AI could hold the key to managing budgets, remaining compliant and retaining the quality of due diligence – but with one essential addition: a human-centric approach.
1. The research collated insights from 550 directors and other senior respondents across a range of countries – including the UK, Germany, UAE, France, Switzerland, USA, Canada, Australia, Singapore and Hong Kong – and included financial and non-financial businesses and professions, specifically drilling down to distil insights into current views on EDD spend and processes, as well as expectations for future developments.
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