Outsourcing client due diligence (OCDD) works crucially for modern-day business operation activities such as finance, legal, healthcare, and technology. It entails processes that require compliance with regulatory requirements; reduction of risks; and trust from stakeholders. However, given the ever-more intricate nature of both global regulations and incoming data, most organizations are finding it virtually impossible to manage CDD in house, accepting client due diligence outsourcing as a strategic solution for overcoming all these challenges while serving as a springboard into the future of expansion and innovative options.
Value Proposition of Outsourcing Client Due Diligence
Efficiency of Cost
Typically, outsourcing Client Due Diligence saves organizations the costs of constructing infrastructures, technologies, and personnel for customer due diligence processes; instead, they can join the specialized private consultants to access high-end solutions at a fraction of cost of running them in-house. According to the recent Deloitte 2023 survey, the average operational costs of CDD outsourcing companies have decreased by approximately 30%.
Skills and Technology
A third-party solution will bring along its wealth of experience and newest state-of-the-art technologies like artificial intelligence (AI) and machine learning (ML). These technologies perform all repetitive works, create excellence, and truly enlighten business compliance-in-advanced. For example, an AI evaluates thousands of customer records within minutes and flags compliance issues related to international regulations.
Elasticity
This capacity allows companies to allocate their operating scales according to market wealth or demand imbalance as outsourcing includes the flexibility of scaling an operation down or up, particularly in transitive industries like fintech and e-business, where it can be sometimes sudden and unpredictable.
Improved Risk Reduction
Outsourcing Client Due Diligence services gives multiple benefit that helps to from stronger risk assessment frameworks to providers. Most of these providers have big access to global databases, local expertise, and best practices, all of which considerably reduce the possibility of errors, fraud, or noncompliance.
Concentrate on the Core Business Activities
Core areas of the business are driven by delegation of crucial, yet time-consuming, due diligence jobs to outside experts. Thus, they are able to deliver innovation, customer satisfaction, and, finally, profitability.
Trends That Are Shaping the Future of Outsourcing Client Due Diligence
According to the changing technological sky, the cloud will be complemented by various regulatory guidelines and change in business priorities. Discussed herewith are trends that would become the face of Client Due Diligence outsourcing in the future:
Industry-Wise Adoption of Outsourcing Client Due Diligence
Artificial Intelligence and Automation
There are really revolutionizing processes in Client Due Diligence through automating the customer identification processes and analyzing huge transactional databases for possible risks that would otherwise have to be manually scored. The output is faster and more accurate, with comparatively lesser manual errant attempts. The recently released report by PwC mentions that as much as 68% of outsourcing firms have declared plans to invest in AI for compliance output applications.
Blockchains Technology
Blockchain technology is made to revolutionize due diligence by giving secure, tamper-proof, transparent documentation of transactions and identities. This development will ease the entire verifications and minimize frauds while reinstating the trust of business and consumer.
Applying Data Analytics
They are starting to use the big data analytics to complement the services that they provide through third-party contractors outside compliance. It may simply take business decisions in accordance with signals in market behavior or consumer behaviors patterns.
RegTech partnerships
RegTech is fast becoming an integral part of outsourcing Client Due Diligence processes. Other than direct contact with a RegTech provider, outsourcing Client Due Diligence providers can offer their own customized, industry-specific compliance solutions as they collaborate with the RegTech companies. In the financial sphere, for instance, RegTech will guarantee compliance with strict AML and KYC regulation
Comply with the ESG Criteria
Increasingly, environmental, social, and governance (ESG) factors are in the outsourcing client due diligence process. Outsourcing providers have layered ESG evaluations into their services for the enterprises to realize an alignment between themselves, investor expectations, and several regulatory standards.
Globalization and Localization
For example, when businesses enter the international marketplace, the demand is usually quite high because of the localized know-how they have in navigating their respective regulatory environments. Global reach and local knowledge are ideal combinations when you want to serve such needs.
Outsourcing Client Due Diligence: Market Analysis and Projections
The entire outsourcing industry is booming, and the Outsourcing Client Due Diligence part is also keeping pace. Some major data related to this are as follows:
Outsourcing Client Due Diligence – Market Growth
Client Due Diligence: The Market Size
Approximately $261 billion was the estimated market size for global outsourcing in 2022, and it is expected to soar to $620 billion by 2030, at a compound annual growth rate of 6.5% (Statista, 2023).
Demand for Client Due Diligence
The demand for Outsourcing Client Due Diligence will be growing almost up to 25% yearly until it approaches compliance mandates or becomes a necessity for effective and useful compliance processes.
Cost Reduction
More than 70% of companies that resorted to Outsourcing Client Due Diligence confirm significant cost savings and better compliance rates (KPMG).
Case Studies: Success Stories in CDD Outsourcing
A Top Financial Institution
An international bank found an outsourcing company that would help it in improving KYC processes. The providers used AI and blockchain technologies, leading to the 40% reduction of time onboard; this could be reused for better compliance with AML regulations, where they found the savings of 15 million dollars per year for the bank.
A Multinational E-commerce Company
With a rapid expansion into emerging markets, an e-commerce titan decided to outsource its client due diligence operations. The localized experience of the provider meant the reassuring compliance with local requirements, meaning that the customer acquisition rates swelled, enabling a smooth market entry while being 20% higher.
Magistral Consulting’s Outsourcing Client Due Diligence Services
Customer ID and Verification
This service is proved by KYC of Magistral Consulting, wherein its company verifies customer identities. They can do it with official identification papers. Such papers were screened with the world sanctions list, the list of the worldwide watchlists and PEPs. Therefore it follows the principle of law to bring in among the stakeholders their trust.
Anti Money Laundering and Risk Assessments
The company runs a full risk assessment of whether there are red flags associated with money laundering. Advanced due diligence on customers marked risky will be performed, for example, background review, adverse media analysis, and ownership structures, through the profiling of the beneficial owner during the risk profiling exercise that will enable it to carry out such action considering the compliance requirements.
Compliance with the regulatory environment and monitoring
Magistral adheres to the local and international standards, which include FATF, FinCEN, and EU AML directives. They keep the reporting and conduct internal audits and follow up with continuous compliance monitoring by sending the required periodic updates in client profiles. The document management service further streamlines the compliance process by efficiently handling onboarding and monitoring requirements.
Technology Integration and Analytics
Advanced technologies such as AI and automation have made the due diligence of Magistral more efficient. Custom dashboards and workflows allow real-time tracking, minimize errors, and speed up data collection and analysis. Innovations such as these ensure accuracy and operational efficiency in compliance activities.
Market-Specific Expertise
Magistral Consulting brings solutions specific to the financial institution and private equity house, asset management, and corporations. Its special due diligence service offered to mergers, acquisitions, and investment transactions addresses special needs for a market while offering great compliance with smooth transactions.
About Magistral Consulting
Magistral Consulting has helped multiple funds and companies in outsourcing operations activities. It has service offerings for Private Equity, Venture Capital, Family Offices, Investment Banks, Asset Managers, Hedge Funds, Financial Consultants, Real Estate, REITs, RE funds, Corporates, and Portfolio companies. Its functional expertise is around Deal origination, Deal Execution, Due Diligence, Financial Modelling, Portfolio Management, and Equity Research
For setting up an appointment with a Magistral representative visit www.magistralconsulting.com/contact
About the Author
The article is authored by the Marketing Department of Magistral Consulting. For any business inquiries, you can reach out to prabhash.choudhary@magistralconsulting.com
Can outsourcing be a solution for companies to quickly adapt to market changes?
Indeed, OCDD has scalable features which enable a company to change its operational strategy in accordance with demand from the market or the state of the economy.
Why is ESG compliance gaining importance in OCDD?
ESG factors align businesses with investor expectations and regulatory standards, making them critical for sustainable growth.
What is the anticipated market size of OCDD in 2030?
It has been anticipated that by the end of 2030, the total global outsourcing market would rise to $620 billion, out of which a significant portion would come from the growth of OCDD.
What is the annual growth rate of the OCDD market?
The market is projected to grow at a compound annual growth rate (CAGR) of 6.5%.