Regulatory changes and stiffer fines are a call to action for smarter KYC/AML compliance

The financial services industry is facing more rules – and harsher consequences than ever before if they fail to observe them – notably in complying with anti-money laundering (AML) regulations for know your customer (KYC).

In Singapore late last month, the UK Prime Minister David Cameron warned there was “no place for dirty money” in Britain, that his government would address ways to make property ownership and bidding for government contracts by foreign companies more transparent. “We want {to be} the most open country in the world for investment,” he noted, but the UK must not become “a safe haven” for corrupt money from around the world.

The tough talk and the pace of regulatory change is fast accelerating, just as the cost of compliance continues to rise. The global financial services industry has arrived at the point where compliance officers must assimilate on average 167 regulatory alerts per day – up considerably from 68 a few years ago – encompassing rulebook changes, policy statements, enforcement orders or announcements of fines, according to Thomson Reuters Regulatory Intelligence.
Consequences of non-compliance keep growing: in 2014, the UK regulator alone issued £1.5 billion in fines; in 2013 the figure was £474 million. Worldwide since 2013, financial institutions failing to meet AML rules for KYC have been fined more than $10 billion. Less quantifiable is the reputational damage they incurred.

Banks and corporates facing sped-up regulation, higher fines and greater accountability need to embrace a “culture of AML and KYC”, founded on an integrated AML approach, the bedrock of which is a robust KYC programme. They must become front-footed and proactive in their approach, equipped to know their customer at all times, not just at the on-boarding and refresh stages of the process.

Also critical is the integration and management of client data – accessing the right information about clients on demand, understanding and identifying the “risk flags” around AML as well as those that enable the funding of criminals and terrorists.

With these capabilities, a financial institution can deliver an intelligent AML programme, with a customer record that provides a single version of the truth and the reference data from which all client decisions can be made. This integrated approach enables firms to go beyond traditional KYC activities and securely make payments and anti-fraud decisions.  Such a programme creates a holistic picture of risk, using analytics and benchmarks that truly enhance an institution’s culture of AML and KYC.

The industry has now begun to think and act smarter in managing KYC and reducing the adverse costs and impacts of failure.  Attitudes toward KYC managed services and utilities held by all participants – from banks to corporates and funds – have evolved from where they were 18 months ago.

Banks are now more than ever standing on the front line against this kind of financial criminal activity, charged with the responsibility to identify and report suspicious activity as well as to deny criminals access to the banking system.  And clearly that means it is a joint responsibility for everybody in financial services to ensure only legitimate enterprises can participate in the financial system.  In our view, the smart course of action is to adopt and implement a “culture of AML and KYC” leveraging industry best practice such as our Thomson Reuters Org ID managed service.

Since going live this past year, we have put theory to practice and become the most credible provider of AML and KYC client on-boarding services in the global Corporate and Institutional Banking market. We are experiencing exponential growth in demand for our platform from a blue-chip client roster straddling both the buy- and the sell-sides.  Indeed, Thomson Reuters Org ID is fast becoming the standard for completing, validating, screening, monitoring and unwrapping KYC records that the industry trusts with nearly 10,000 complete KYC profiles published to date.

Regulators and financial institutions seeking solutions to counter the increasing prevalence and sophistication of money laundering and financial crime need look no further!

Steve Pulley is managing director of Thomson Reuters’ client on-boarding and KYC solutions business and a member of the senior leadership team having joined the firm in February 2013. Prior to assuming this role in March 2015, Steve held the position of global head of industry solutions and partnerships for the financial and risk business unit. Steve joined Thomson Reuters from AnaCap Financial Partners, a €2 billion private equity firm focused on investments in European financial institutions where he was a managing director involved in all aspects of the investment life cycle.  During his career with AnaCap, Steve led a series of acquisitions and sat on the board or supervisory board of five portfolio companies.  Previously Steve was a management consultant with Oliver Wyman in London and New York.  As a member of the Capital Markets Practice he led and worked on a range of strategy, risk management and post merger integration projects for financial institutions in Europe, North America and Asia.  Steve is a graduate of Oxford University with an MA (Hons) in Mathematical Sciences and is married with one daughter.

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