The CIO Guide to Automating Due Diligence with Gen AI
Table of contents
- The Modern Challenge of Customer Due Diligence
- What is AI-Powered Customer Due Diligence?
- How the Rise of Generative AI Impacts AI-Powered Due Diligence
- Looking for AI tools to automate Due Diligence?
- Preparing for the AI Era of Customer Due Diligence
- Leverage Exadel’s Generative AI Services to Enhance Your Customer Due Diligence Strategy
The ongoing development of artificial intelligence (AI) continues to breathe new life into financial operations.
Customer Due Diligence, or CDD for short, has for years been a cumbersome and time-consuming process for both CDD teams and customers alike.
Anytime a financial organization onboards a new customer, that customer must be processed on all fronts — from payment history to criminal record. The result is often a drawn-out process that can hinder operational efficiency and customer satisfaction. However, as AI&ML has matured and its use cases within regulated industries have expanded, CIOs are presented with a new opportunity to boost CDD efficiency.
Research shows that AI — specifically generative AI — can boost efficiency by 59% in data analytics, 58% in middle-to-back office processes, and 57% in client-facing support.
AI’s ability to learn from vast amounts of unstructured data is proving to be a game changer for CDD, particularly in the areas of risk management and fraud detection.
Let’s explore how automating Customer Due Diligence with AI makes for a safer and more efficient process.
The Modern Challenge of Customer Due Diligence
Customer Due Diligence (CDD) has long been a tedious process, even before the surge of unlimited digital information which organizations have access to today.
The modern-day CIO has a lot on their plate. To optimally manage their organization’s IT and digital strategy, a CIO must ensure that all technology infrastructure, systems, and strategies align with current business objectives. On top of this major responsibility, a CIO must also pay close attention to the ever-evolving regulatory requirements that dictate how customer information must be handled and protected.
The modern CIO is not only responsible for technology management and optimization, but also cybersecurity, data management, IT operational efficiency, risk management, and regulatory compliance. On top of that, they’re frequently tasked with business innovation too.
Let’s take a look at three of the most common Customer Due Diligence pain points in the modern digital environment:
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Regulatory Challenges
Regulators are laser-focused on protecting customer information as new technologies continue to emerge at an increasingly rapid rate. Due to the rapid pace of regulatory change, CIOs are forced to spend more time and money on updating their systems and infrastructure — or face fines for non-compliance. Yet, keeping up with regulatory change is only becoming more difficult as organizations struggle to keep up with the growing pools of information needed to properly assess customers for CDD processes.
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Inefficient Onboarding
Slow turnaround in the client onboarding process can not only be an operational hassle, but also a major detriment to customer loyalty and retention. When organizations rely on manual KYC processes, cross-referencing customer information across all available databases becomes a monumental task. Boosting the efficiency of the onboarding process requires the right amount of resources and expertise to implement an improved onboarding process that automates KYC activities wherever possible.
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Risk Assessment
CDD teams increasingly deal with false positives in the risk assessment process. When a customer is incorrectly flagged as suspicious, more manual time and effort is spent investigating the alert and determining whether the alert is legitimate. As more and more false positives occur, organizations take a hit to their operational efficiency while customers are met with an unsatisfactory customer experience. Moreover, organizations must commit tremendous resources to investigating false positives, making it all the more important to reduce the number of illegitimate alerts.
Along with these challenges, modern CIOs are also faced with choosing the right vendors for CDD solutions. These days, vendors are easy enough to find, but not all provide the necessary level of quality or expertise.
The key to moving beyond the limits of outdated CDD processes lies in partnering with an experienced vendor who can provide CDD solutions powered by the latest (and best) technologies.
What is AI-Powered Customer Due Diligence?
AI-powered Customer Due Diligence refers to CDD processes supported by AI technologies. In many cases, AI helps streamline CDD processes by automating traditionally manual tasks.
Artificial intelligence consists of two main functions that make it one of today’s most powerful and influential technologies — natural language processing (NLP) and machine learning (ML). NLP aids AI models in processing and understanding information like a human being. Meanwhile, ML enables AI to utilize complex rules and decisions automatically.
Together, NLP and ML give AI the capabilities to securely and efficiently support CDD processes. AI as a whole provides four core benefits for Customer Due Diligence:
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Improved Data Quality & Accuracy
Verifying data accuracy is critical to CDD, albeit time-consuming when handled manually. AI for due diligence allows organizations to cross-reference and validate data in a matter of minutes by simply inputting the data and providing the AI model access to the databases used for cross-referencing. Additionally, due diligence AI tools lack the potential for human error, making it much less likely that any data inaccuracies will be overlooked or missed.
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Increased Scalability
Acquiring customers requires significant time and resources. By enhancing CDD, KYC, and AML processes with AI for due diligence, your organization can simplify customer acquisition without increasing operational or cost burdens. With the proper implementation and management, an AI-powered CDD solution can handle growing volumes of customers with ease, as well as limit the occurrence of false positives and alerts.
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Enhanced Customer Experience
Traditional CDD and KYC processes have earned a bad reputation for hindering the customer experience, causing inconvenience and friction that can sometimes turn a customer away entirely. AI for due diligence — and, specifically, generative AI — presents new capabilities for improving the customer experience by creating a more streamlined onboarding flow and fewer chances of disruptions in the process. Generative AI can also help make the process more user-friendly, accessible, and accurate overall.
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Localization
For financial organizations operating internationally, one considerable challenge within the CDD process can be language barriers and overall localization. AI and generative AI can help review and vet data which is not in the organization’s native language, as well as translate information into that language. As a result, your organization can smooth out the CDD process for customers around the globe, further extending your reach and audience.
How the Rise of Generative AI Impacts AI-Powered Due Diligence
Generative AI is an emerging form of AI that can generate content based on a specific input prompt.
Generative AI can produce content in a wide range of digital mediums, including visual, audio, and written. Additionally, Generative AI can check input data for accuracy and cross-reference it against other trusted databases. This is a process that has historically required tremendous manual effort and database expertise.
According to a 2023 McKinsey report, 83% of financial services organizations have had at least some exposure to generative AI, with 24% regularly using the technology.
AI is a rapidly evolving technology, and many organizations strive to leverage the latest AI innovations to build a strong, competitive advantage. The ability to help streamline data management and monitoring processes makes generative AI for due diligence one of the most notable emerging technologies for CIOs.
Unlike standard AI models, generative AI is specifically trained to perform user-generated prompts. As a result, IT experts can utilize generative AI programs for due diligence to create precise and highly tailored search queries that produce the results and insights necessary for CDD processes with much greater efficiency.
By harnessing the power of generative AI for Customer Due Diligence, CIOs and their teams can take advantage of:
- Quick validation of data quality through AI-enhanced cross-referencing
- Optimized compliance strategies which help organizations stay ahead of ever-changing regulations
- Improved risk assessments through the identification of high-risk customers and limitation of false positives
Today, generative AI is still a relatively new technology within the financial services industry. While the technology is still only scratching the industry surface, organizations must accelerate their generative AI strategies as regulators continue to introduce more stringent AI mandates.
Generative AI is sure to be a focal point for regulators in the coming years. The technology poses both advantages and risks that stand to have a monumental impact on operational resilience, depending on how well it is implemented and managed within an organization.
As Generative AI continues its climb in popularity, we will likely see the technology emerge as a crucial tool in client-facing operations, including CDD, post-trade processing, and contact centers.
Looking for AI tools to automate Due Diligence?
Call us today.
Preparing for the AI Era of Customer Due Diligence
AI has already taken center stage in many industries. To remain competitive in the months and years ahead, financial institutions will have to take the initiative with innovative technologies such as AI, instead of being mere bystanders.
Now that generative AI has entered the scene, it is high time for CIOs to define their AI strategies for Customer Due Diligence, with specific emphasis on implementing the best AI solutions.
Here are three ways CIOs can begin preparing for the AI-powered future of CDD:
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Identify Key Areas for Improvement
Initiating an organization-wide adoption of AI is a massive undertaking, even for large financial organizations. By focusing specifically on Customer Due Diligence to start out with, your organization can begin to build a proof of concept for due diligence AI within your business strategy. Doing so can prove essential for implementing more cutting-edge AI solutions, like generative AI, by establishing an internal standard for the technology and its many applications.
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Foster AI Expertise
Whether your organization plans to work with vendors or develop due diligence AI capabilities entirely in-house, fostering an AI-friendly environment is crucial. This can equate to modernizing your current infrastructure, especially the systems used to perform CDD onboarding processes like KYC and AML. By assessing your current AI strategy and nurturing existing talent, you can prepare your organization to take the lead in AI innovation.
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Embrace Collaboration
AI and collaboration are inherently intertwined. Many of the top AI experts in today’s financial service industry don’t come from the financial organizations themselves, but from trusted third-party vendors offering tailored solutions for specific use cases, such as Customer Due Diligence. To make the most of AI for Due Diligence, your organization must embrace a collaborative strategy with a trusted technology partner.
Leverage Exadel’s Generative AI Services to Enhance Your Customer Due Diligence Strategy
With generative AI making new waves in the financial services space, organizations are quickly realizing the enormous untapped potential AI due diligence presents to operational efficiency and optimization.
The time for simply observing AI’s evolution is past. To achieve true and lasting success, CIOs must adjust their due diligence strategies and systems to accommodate this new technology. As the development of new AI applications like generative AI continues to unfold, it is important to have a well-defined approach to AI for due diligence, complete with the necessary resources, expertise, and support to accelerate business.
At Exadel, our generative AI consulting and development services are designed to improve CDD and KYC process for financial institutions.
Using our expertise and technology, we enhance your Customer Due Diligence system by replacing your existing NLP with generative AI. By doing so, we help you reduce the manual effort required of human due diligence checkers, ultimately increasing overall automation.
A partnership with Exadel offers many crucial business advantages, including:
- Deep industry expertise in both finance and technology
- Extensive data privacy expertise and certification
- Experience support in both traditional AI and generative AI applications
Additionally, Exadel offers full compliance with all data privacy and security regulations. As a global organization, Exadel can help you expand your reach, connect with more customers, and win customer loyalty through a streamlined and frictionless CDD process.
Embracing modern technological advancements while simultaneously staying ahead of the regulatory curve is hardly a small task. Exadel provides you with all of the resources and support necessary to make smarter technology investments and implementations.
Partnering with Exadel gives your organization the technical foundation needed to implement AI solutions and improve the CDD process.
Contact Exadel’s generative AI experts today to get started.
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