Financial security: The imperative of AGI- based KYC frameworks

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IN every financial climate, the Know Your Customers ( KYC) operational framework has been used as one of the tools in ensuring Financial Transaction Integrity. Most regulators around the world prioritise qualitative KYC as the first line of defence against any malpractice.

In this new world, we must admit that the analog KYC framework that we currently administer is not only inadequate, but grossly ineffective due to evolving technology. This model was put in place when the banking model was largely Brick and Mortar, in which transaction consummation must always involve an account domiciliation branch. However, over time, banking services and its product offerings have evolved tremendously around features such as the customers’ lifestyles, technological advancement, competition, and globalisation ( intense drive for market share), shifting demographic preference, economic trends and so on.

Due to this, the risk landscape in banking is outpacing, customers increased service expectations and a vast number of financial products have become sophisticated when compared to what obtains two decades ago. Therefore, dovetailing into the outpacing risk landscape, the existing KYC framework is medieval because features, such as physical validation of address ( this is repeated every six months) no longer serve the purpose and thus irrelevant. Consequently, the present KYC process only has a retroactive application post- incident. It is a catch- up mechanism that is irrelevant in the evolving financial world.

The use of Artificial General Intelligence ( AGI) has enabled, in an unprecedented fashion, the way we carry out activities that impact all aspects of our daily lives. Of profound importance is the ease at which digital version can be created with the use of AGI. This downside of AGI and many more has disrupted the viability of the existing KYC framework to be used as a tool of validating transaction integrity.

However, the regulators around the world especially in Nigeria are yet to be tuned to the need to address the limitation with the current KYC framework in its present form. The framework needs to be realigned, rejuvenated, and readapted to our current realities brought about by generative AGI by including more contemporary factors to qualify the personal profile a customer has presented.

This is necessary to ensure the continued survival and viability of our financial system. For instance, in a practical sense, the current KYC framework cannot be used to detect if the customer is dead or alive as we have experienced cases where the third- party continued operating a customer’s account even after such customer had passed on, most especially through their ATM because the present process relies on the sixth monthly validation cycles to be able to detect this ( or notification by relatives).

There are many dead customers whose accounts are still active three to four years after their demise just because the KYC framework has been outpaced and put in oblivion by technological advancement and economic trends. Moreso, updating the physical residence and validation of utility bills has been a challenging one, most especially for bank staff.

While it would be an understatement to state that physical residence and utility bill requirements no longer serve the purpose of intent because the majority of customers that are responsible for 70 per cent of daily transactions are people that are less than 40 years of age and are socially characterised as being highly mobile and have multiple residences even within the same city.

Succinctly, customers hardly feel the urge to update their data ( like change of address) when it is necessary, as long as it does not stop most of their transactions.

The reason for this rethinking of the KYC framework is not farfetched. AGI has brought and will continue to bring vast number of fantasy to the realm of reality. The problem is that the known downside of AGI such as deep fakes, disinformation, unethical biases etc. can influence decision- making in the financial sector because pseudo- facts will now be treated as reality. To this end, it is imperative that the KYC framework needs to be upgraded such that it is aligned and able to mitigate the challenges that are crystallised by the AGI evolution. The relevance to introduce AI- based KYC framework that will be dynamic and able to augment or reinforced financial decision- making is now pertinent to the survival of transaction landscape, especially when benchmarked against bank- tocustomer relationship.

The AGI- based KYC framework essentially, is based on use of customer’s lifestyle, work and social footprint as obtained from across different platforms such as the internet, telcos data, social media, web, mobile and digital devices ( phones and smart wristwatches), analysed it with the use of AGI and then use the result to match or validate the personal profile the customer presented.

This is achieved by using patterns of data from these platforms to match a pre- trained and labelled AGI model ( done through deep- learning) to determine the behavioral, social, work and lifestyle of a customer, to derive a generic assessment or judgement and advice on an on- going basis, unlike the approach we have with the present KYC framework.

It may even alert when there is any tectonic shift on any of those parameters such as when there is loss of job or change of residence and so on. Another instance is exploiting the pattern recognition functionality of AGI to abate fraudulent activities. In this instance, a customer may have established a pattern that most of the time he/ she uses the ATM card in a specific region or location which may be referred to as circle- of- influence.

However, by coupling this data with the forage pattern of the customer through the AGI- based KYC, it will be detected anytime the ATM card is used outside the circle of influence and may require higher level of authentication for the transaction to go through. There are many more areas AGI- based KYC framework, if adopted, will be of good use in the financial sector to improve the quality of service, as a defensive measure to prevent/ minimize malpractices, enhance transaction integrity, sustain confidence and enhance the appeal in online or virtual transactions.

The fear of AGI in the financial domain is second to its weaponisation in warfare and law enforcement. The only way to abate this fear is through an AGI- based KYC process that will be able to pool data across different platforms which most critical customers use ( for customer whose banking threshold of NGN two million and above) because with AGI- based KYC, the bank can match personality and transactions with absolute ease and reliably too. Meanwhile, the concern about data privacy may truly be of genuine concern in AI- based KYC. Conversely, this may not be the case as the foundation architecture of AGI may be tinkered to address this concern. Basically, Artificial General Intelligence ( AGI) as suggested herewith, only works on the footprint that was self- created and the spatial pattern of its population and not the discrete value that is of interest here. The AGI use this spatial pattern to qualify the customers and make some deductive assertions about the customer as it relates to social inclination, behavioral tendencies and lifestyle.

Also it will be consistent for a need to pass legislation that will provide the legal backbone to the banks to analyse a customer’s digital footprint such as social media, lifestyle, and changes in social preference using AI concepts in a broader perspective, the call for an AGIbased KYC framework is intended to implant in the heart of the financial institutions and all economic stakeholders that has interest to uphold transaction integrity of the need to setup mitigation framework for the impending challenges that might disrupt the financial transaction landscape.

This sensitisation is purposed to gear the regulators, the banks and other players to be proactive by being steps ahead of the pack by embracing AGI- based KYC framework in their service delivery and it is hoped that urgent action will be taken in this regard soon. If this is not critically considered, the advent of AGI will crystallise a huge financial landscape disruption, occasioned by loss of confidence in financial ecosystem, death of some financial institution and reverse of socio- economic drivers to an unprecedented level. Moreso the cost of salvaging the ugly consequences will be huge and take years to achieve complete recovery.