KYC Law
- 83% of KYC practitioners in law firms expect increase in annual budgets for Know Your Customer Enhanced Due Diligence (KYC EDD)
- 85% report an overall rise in the volume of EDD requests over the past three years.
- Global watchlists and sanctions is biggest compliance concern for legal sector followed by the expansion of digital currencies and crypto transactions
- AI is seen as a valuable tool for enhancing efficiency, but human oversight remains crucial for ensuring compliance accuracy and mitigating risks.
Growing levels of financial crime and regulatory scrutiny are compelling law firms that are subject to KYC regulations to increase their compliance spending, but they remain cautious about relying solely on AI, according to a global survey by LSEG Risk Intelligence that involved KYC practitioners form various industries, including those in law firms.
The survey reveals that 83% of KYC practitioners in law firms expect their organisation’s annual budgets for Know Your Customer Enhanced Due Diligence (KYC EDD) to rise over the next twelve months. There has also been a significant rise in the EDD request volume, as 85% of those surveyed reported a rise in inquiries, while only 3% anticipate a decline.
Despite the push towards technological solutions such as artificial intelligence, the survey underscores the importance of human oversight. Nearly two-thirds – 62% of respondents – believe that KYC EDD should primarily or entirely rely on human involvement, while only 38% support the use of full AI automation.
Daniel Hartnett, Head of Enhanced Due Diligence at LSEG Risk Intelligence, comments:
“Industries everywhere are looking at AI to make their lives easier given KYC and EDD costs and the volume of enquiries rises.
“Law firms involved in financial transactions or services with higher money laundering / terrorist financing risks have particular challenges as regulators have been tightening enforcement actions for non-compliance by law firms. At the same time, many firms lack the capacity or resources to fully meet their compliance obligations.
“AI can deliver substantial cost efficiencies, expedite reporting, and uncover hidden risks, yet it must be implemented responsibly. A balanced, human-centric approach is paramount to achieving compliance accuracy and effective risk mitigation in this evolving landscape.”
Respondents believe that with a responsible AI strategy, the technology can offer several benefits in the EDD space, including:
- Cost savings compared to traditional due diligence methods (cited by 45%).
- Ongoing monitoring and automatic updates of due diligence data (cited by 42%).
- Enhanced ability to uncover hidden risks or patterns (cited by 38%).
- Faster turnaround times for generating comprehensive reports (cited by 32%).
Although AI is viewed as an important tool to increase efficiency, the survey underscores that “Responsible AI” is key to ensuring compliance accuracy and risk mitigation.
Regulatory Pressures and Emerging Risks
As the compliance landscape evolves, organisations identified key concerns that will create challenges in the KYC EDD space moving forward:
- 57% highlighted increased global sanctions and watchlists.
- 45% pointed to the expansion of digital currencies and crypto transactions.
- 38% cited growing customer privacy concerns and data protection laws.
In addition, respondents cited other growing concerns, such as emerging AI regulations and stricter AML rules.
Looking Ahead
Over the next three years, law firms expect KYC EDD programs to be influenced by two main factors:
- 62% emphasized an increased focus on identifying beneficial ownership and complex corporate structures.
- 52% cited a greater reliance on technology and data analytics to manage rising volumes of customer data.
As financial crime risks escalate, and regulations become more stringent, law firms must adopt scalable and cost-effective due diligence solutions to stay compliant with evolving global standards.
