For corporate treasury teams, Know Your Customer (KYC) is an increasingly time-consuming burden. Regulation is getting tighter, banks seem to be (in many cases, anyway) becoming more demanding and the information more difficult to obtain. As a result, in the worst cases, new bank accounts can take months to set up.
While this might be stretching treasury teams, it’s a necessary evil. Money laundering continues to be a problem. The United Nations estimates that money laundering represents a whopping two to five per cent of global GDP – a figure that’s growing – prompting authorities worldwide to bolster regulations in an attempt to stem the flow.
“KYC has become a challenging issue for banks and their corporate clients due to increasing regulatory scrutiny around AML, CTF and other regulations,” says Arin Ray, Senior Analyst at Celent. “Revelations of numerous instances of money laundering have drawn heightened scrutiny from regulators, political authorities, and the general public.”
Complexity and confusion
The problem, Ray explains, isn’t necessarily to do with the concept of collecting data per se – instead it surrounds the disparate regulatory regimes in different parts of the world that move at different speeds. This creates complexities for banks and their customers about the information and documents that need to be collected for conducting adequate KYC due diligence.
“On top of this, sanctions are increasingly becoming tools for conducting foreign policy,” Ray adds. “Rapidly changing lists of sanctioned entities make it challenging for banks and corporate treasuries to ensure they are not engaging with sanctioned entities or their associates.”
As a result, there is also growing focus on not just knowing a customer, but also the ultimate beneficial owner (UBO) – data on which can be hard to obtain and analyze. Additionally, there is growing requirement on banks to perform more frequent periodic refresh on KYC and risk assessment on their customers, meaning the KYC challenges arise not only while onboarding a new client, but throughout the bank-corporate relationship lifecycle.
Ray adds: “The result is that corporate treasurers are inundated with requests from their banks about information and documents – often spread across different channels such as emails, phone calls, fax, and even paper documents. The natural consequence of this is growing costs and operational complexities as well as a lot of duplication of effort, which result in delays and unsatisfactory client relationships.”
Recognising the KYC problem
Earlier this year, recognising the importance of the KYC burden on treasury teams, Swift announced recently that it is extending the reach of its KYC Registry by opening up the platform to corporates from Q4 2019.
The KYC Registry is an online portal for financial institutions to exchange institutional KYC Due Diligence information. The platform allows banks to share KYC data and documents with their correspondents in a secure, standardised and controlled way, as well to get access to their correspondents’ complete and validated KYC profiles, resulting in efficiency and cost savings in KYC processes. Once opened up to corporates, all 2,000 Swift-connected corporate groups will be able to join The KYC Registry, and use it to upload, maintain and share their KYC information with their banks.
Stephan Ziegler, Head of Bank Relations at Siemens Treasury, said: “As a global corporation, the efforts of Siemens to perform KYC-related tasks across the institution is a repetitive, lengthy and a cumbersome process. At Siemens Treasury we are constantly looking for ways to increase our efficiency. With Swift announcing KYC for Corporates, we are delighted to see a well-positioned player moving ahead to answer this need with the full strength of its banking and corporate community.”
Two main approaches
While Swift’s KYC solution is one attempt at addressing the problem, treasurers do have concerns over its real-world value. For example, can it be easily applied to corporates? Or is it more suited to KYC between banks, which tends to be much more standardized than corporate KYC? Also, will banks’ risk management teams accept documents in the database as equivalent to paper? Will regulators accept this database as sufficient evidence that banks performed adequate KYC when things go wrong? A number of questions remain.
With this in mind, Ray suggests the industry is successfully utilizing two main approaches for streamlining the challenges in KYC.
“The first,” he says, “is mutualization of efforts, which essentially is about sharing the burden of doing KYC due-diligence among industry participants. We have seen a few ‘utility’ type initiatives launched in the last few years with the idea of centrally collecting information and documents from corporates and others, and making it available to banks with proper data privacy and access controls.
“This model has a lot of merit in reducing the complexities and redundancies in the KYC process, but requires information providers (e.g., corporate treasurers) to provide their information in a timely and adequate manner, which has been a bit of a challenge. Because of disparate regulatory regimes in different jurisdictions, standardization of approach and achieving consensus among a large swath of participants can be an issue, and we have seen national or regional utilities emerge in response to that.
“The second approach is leveraging emerging technology such as AI, machine learning, and robotics, which can be used to automatically source and analyze large volumes and different types of data using intelligent automation techniques. These techniques can reduce the operational burden and make responding to rapidly changing regulations and sanctions lists much easier. They are also being used to enrich information on UBOs, improve efficiencies in watchlist screening, identify networks and connections among different entities, and perform due-diligence for resolving suspicious cases – these can help in making the KYC, onboarding, and periodic screening more efficient and effective.”
Technology to the fore?
For many, digitisation is the answer to easing the KYC burden. As Gert Sylvest, Co-Founder of Tradeshift and GM of Tradeshift Frontiers says in our recent article on the future of KYC solutions: “Digitization of AP is really the key first step to bringing value to sellers, treasury and AP. It provides a foundation of efficiency, delivering on earlier payments and the digitization of all information that is funneled into the settlement decision. This leads to lower barriers of entry for cross-department work, offering the opportunity to integrate with financial and insurance partners more seamlessly.”
Fintechs are also playing their part in the KYC space. For example, Accuity – the provider of risk management and compliance software – has launched a new AI-powered account screening capability to increase the level of accuracy of screening matches during the know your customer process.
Whether solutions like this will ultimately ease the burden is a matter for debate – and one we’ll look at over the coming weeks.
Share your thoughts
We would love to hear your thoughts about KYC. What’s causing you pain? How are you overcoming it? What role can technology play? Let us know by emailing Austin.clark@contentive.com or head to The Global Treasurer’s LinkedIn page here.