RegTech Know-How Series #2

On 18 November, Finologee hosted a workshop on digital KYC journeys in the life insurance market. A group of about 30 industry professionals gathered at this in-person meeting at Finologee’s premises. It was a unique opportunity to share actionable insights and valuable knowledge on topics such as compliance with CAA Circular 18/09, digital risk scoring, and digital remediation campaigns among peers. To this end, attendants heard exciting contributions from PwC Luxembourg, AG2R La Mondiale, Harmoney, and Finologee. The networking cocktail that followed provided a great opportunity to share practices and address questions.

The workshop is a part of Finologee’s “RegTech Know-How Series” of events and analyses, which addresses existing and future regulatory requirements in the financial industry as well as opportunities and benefits for industry stakeholders through innovative digital solutions. Jonathan Prince, co-founder and CSO of Finologee, led attendees through the program.

Presented by Anthony Dault (Partner at PwC Luxembourg), David Donias (Director at PwC Luxembourg) and Mehdi Laghlam (Manager at PwC Luxembourg)

Both increasing pressure from regulators and governments and intense press coverage of scandals and fines imposed have put regulatory compliance at the top of the agenda of financial industry managers in recent years. It is therefore all the more surprising that a 2020 AML survey by PwC Luxembourg found that only 65% of respondents believe their AML/CTF framework is fully compliant with current laws and regulations. Besides, 76% of insurers see increasing regulatory pressure as their biggest AML/CTF challenge, while almost all (82%) respondents have come to recognise the benefits of digitalisation and automation and intend to invest in this area in the coming years.

“Whereas compliance is often associated with high costs and complexity, it by no means has to be” David Donias explained. “Instead, compliance ecosystems should be simplified, standardised and digitised. With more than half of respondents stating that their costs related to AML have increased by more than two-thirds in the last three years, the rationale behind compliance procedures should really be much more about decreasing costs by creating a future-proof and efficient risk and compliance function with flexible and scalable processes” Anthony Dault added. “This way, compliance could be turned into a critical competitive advantage that can, in particular, build trust with stakeholders and regulators, create business opportunities through real-time insights and provide the basis for making confident, risk-based decisions.”

“Data is, in fact, the key to managing risk and compliance”, stressed Mehdi Laghlam, “as it can be turned into meaningful information which will ultimately lead to smarter, informed choices. Efficient and modern procedures for data collection, storage and analysis are crucial here, as is an understanding of the data and the root of data problems.” Anthony Dault underlined that “Compliance will never be completely replaced by robots, but that it must undergo a transformation as digital tools can help to significantly simplify the daily compliance routine”, he said. “Going forward, risk and compliance functions should operate as a true business and strategic partner”, he said. In this way, it could permanently strengthen partnerships and increase satisfaction levels.

Presented by Amélie Doublet (Legal Counsel at Finologee) and Thomas van Maele (CEO at Harmoney)

Finologee’s Amélie Doublet started the session with a brief refresher on CAA Circular 18/9, which was introduced in 2018 to obtain an overview of the risk level of all life insurance contracts in Luxembourg. It requires all stock contracts to be provided with an AML risk score based on a quantitative CAA questionnaire. Following a previous deadline set at the end of the year 2019 that allowed insurers to apply a simplified methodology (“model point”) to all non-high-risk contracts, a re-scoring of contracts assessed under this methodology is now required by 2024 for medium-risk contracts and by 2027 for low-risk contracts. 

She then addressed how digital tools can facilitate compliance with Circular 18/9, highlighting four key points:

She concluded that using digital tools can significantly improve data quality by minimising the need for manual re-keying. Their adoption also leads to limiting the risk of human error, saving resources by automating processes and calculations and achieving greater operational efficiency and fluid communication. 

For more information on CAA Circular 18/9, read here – RegTech Know–How Series #1

Thomas van Maele, CEO of Harmoney, followed up precisely on these listed benefits by presenting KYC Manager, a platform that is built and run by Finologee and Harmoney in a joint-venture. The tool is a digital enabler for compliance with Circular 18/9; dedicated to helping Luxembourg-based entities that are subject to anti-money laundering obligations streamline the management of their KYC and AML-related processes, while connecting them to their end customers, front offices and compliance departments. Client onboarding, KYC remediation campaigns, client/account update campaigns, blacklist/sanctions list checks and corporate registers/databases are processes that KYC Manager can simplify and digitalise. Workshop attendees received an insightful demo of KYC Manager from Thomas van Maele and were able to see how the platform can make processes more efficient. 

Presented by Pascal Bughin (Director of Transformation, IT and Digital at La Mondiale Europartner) and Quentin Clarenne (Head of Business Development at Finologee)

The workshop continued with a presentation of a remediation campaign carried out by La Mondiale Europartner (LMEP). The Luxembourg life insurance company that is part of the French AG2R La Mondiale group relied on KYC Manager to handle data and process management as well as digital interactions with its end customers.

Pascal Bughin began by explaining the context of the project launch to the audience: “There are a number of factors that led us to consider updating and enriching our customer master data, such as internal and external audits and regulatory pressure. Given the small size of our team, a paper-based remediation campaign was not an option, so we needed to find a suitable digital solution. In addition, we are already working with an intermediated distribution model that does not favour direct customer contact. So, in this B2B2C context, it was a challenge to convince numerous partners.”

Quentin Clarenne went on to explain how, per LMEP requirements, Finologee’s KYC Manager platform was able to solve these difficulties and bring together the insurance company’s brokers, end customers, and the LMEP compliance team: “The project was carried out in four stages. First, we set up the KYC Manager platform according to the needs specified. Next, we selected a first broker to launch an initial remediation campaign as a proof-of-concept. Then we gathered feedback for analysis to refine and customise the implementation. This was followed by additional adjustments to the setup we put in place.” “After importing existing customer information into the KYC Manager platform via API from our internal systems, we could easily contact customers – by paper letter for the first batch and then by email for subsequent customer segments – to encourage them to update their personal data. To do this, they received credentials and a secure web address to connect to a LMEP-customised version of the KYC Manager interfaces”, Bughin added.

Pragmatism in customer flow configuration and data requests, interactions with the brokers to join the project as well as open cooperation between both project teams, were presented as the project’s key success factors. Pascal Bughin commented on his contentment with the results of the project, highlighting, in particular, the higher data query response rate, as well as the quality of data provided by clients, the customer experience and the private banking partners’ high satisfaction levels. He also addressed the fact that the operational efficiency of LMEP staff in retrieving data has been greatly simplified by this approach.

Matt Moran, insurance industry leader at PwC Luxembourg, kicked off in a rather unusual way: he asked the audience to first close their eyes for a moment, and “think about what the Luxembourg insurance market could look like in about 10-15 years. How could we take the Luxembourg market to a new level? What opportunities could be used to achieve this?” He noted that the B2C market had already made amazing developments in contrast to the B2B market. For him, platformisation, long seen in the travel and music industries, is also a real game changer opportunity for the insurance and finance sectors. “Going forward, it should be much more about creating a true ecosystem by forming alliances and partnerships. All stakeholders must be able to connect with each other when needed,” he said. “Dream a little bit about what can happen if you allow for just small change,” he concluded, kicking off the networking part of the event.