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New Solutions May Finally Help Streamline KYC Compliance

By Bill Camarda

When companies identify opportunities in international trade, one of the last things they want is to be delayed or deterred by slow, complicated bank compliance procedures. But all too often, Know Your Customer (KYC) compliance and Anti-Money Laundering (AML) requirements have precisely that effect, frustrating both businesses and their financial institutions.

One key KYC compliance problem is that businesses find themselves having to provide essentially the same information over and over again, every time they want to establish a new financial relationship. Even after onboarding, requirements to update banks on material changes to the organization can further complicate financial relationships and reduce business agility.1

 

In recent years, “KYC utilities”—also known as “KYC registries”—have sought to solve these problems by providing unified repositories of data that financial institutions can use to establish relationships with distant correspondent banks or corporate customers.

 

So far, these KYC compliance solutions have had mixed success, partly because they haven’t reached critical mass and partly because the types of information needed for compliance vary by jurisdiction, financial product, or customer. For example, the Association of Banks in Singapore recently put its own KYC compliance utility on hold, identifying high costs and complexity, operational risk, and the difficulty of serving stakeholders with widely varying needs.2 Similarly, Bloomberg recently announced that it would shutter its Entity Exchange KYC utility and exit the business altogether.3

 

Even so, the need to improve KYC compliance systems is driving new efforts that show signs of promise.

 

SWIFT Extends Growing KYC Registry to Corporations

 

SWIFT, the international financial industry consortium, has already signed up 5,400 banks around the world for its KYC Registry.4 SWIFT takes responsibility for data collection, validating information and keeping it updated, securely delivering information to only the banks that need it, and triggering alerts if a correspondent bank’s profile changes.5

 

As Bank of America executive Stephanie Wolf has noted, SWIFT’s KYC compliance solution gained momentum after quickly adopting the updated Wolfsberg Questionnaire, which has helped to standardize the types of information that correspondent banks require from each other in order to begin doing business.6

 

Building on growing usage within the financial sector, SWIFT recently announced that, starting in the fourth quarter of 2019, corporations will be able to join its KYC Registry, too. Noting that corporate treasurers have identified KYC compliance as one of the top challenges they face in their banking relationships, SWIFT’s Marie-Charlotte Henseval said, “This unique and well established utility already delivers huge benefits to banks, and its extension to corporates will extend them the same advantages, with a standard agreed by the community and a secure platform enabling efficient data sharing.”7

 

SWIFT ultimately aims to make its KYC Registry available to any business that can benefit from it. But it will begin by opening the doors to some 2,000 SWIFT-connected enterprises that have established direct relationships through the organization’s SWIFT for Corporates program. Those firms will be able to upload, maintain, update, and share their KYC information with any bank that participates in SWIFT’s registry.8 A diverse range of global enterprises are helping to influence how SWIFT’s KYC Registry will serve businesses.9

 

Alternatives Built on a Decentralized Blockchain

 

Some industry participants view centralized KYC compliance systems—like SWIFT’s—as problematic, and argue that decentralized systems built on secure blockchains will prove more effective. For example, enterprise blockchain software firm R3 is building a decentralized KYC compliance system in which participants wouldn’t have to trust a third-party to supervise all data management, and a shared distributed ledger would ensure that “a correct, current, consistent source of truth exists at all times.”10

 

R3 says such a system could improve resiliency by eliminating single points of failure and strengthen security and privacy by eliminating intermediaries, putting companies back in charge of their own data.11 In 2018, the company reported a four-day trial in which 39 participants completed over 300 KYC compliance transactions in 19 countries using R3’s Corda blockchain platform.12

 

Machine Learning: Making KYC Compliance Smarter

 

As centralized and decentralized KYC compliance utilities evolve, advanced machine learning (ML) is also playing an increasing role in helping financial institutions and corporations improve KYC and AML compliance requirements to streamline business transactions.

 

For example, ML can help financial institutions quickly determine who’s high risk and who isn’t, understand more about who they work with, automatically read national registers to determine who actually owns a company, reduce the number of false “money laundering” positives generated by legitimate transactions, and automate document generation to accelerate onboarding.13

The

Takeaway:

For years, corporations have been told that cumbersome bank KYC compliance processes were about to improve. This time, it may be true.

Bill Camarda - The Author

The Author

Bill Camarda

Bill Camarda is a professional writer with more than 30 years’ experience focusing on business and technology. He is author or co-author of 19 books on information technology and has written for clients including American Express Private Bank, Ernst & Young, Financial Times Knowledge and IBM.

Sources

1. “KYC compliance: the rising challenge for corporates,” Refinitiv; https://www.refinitiv.com/content/dam/marketing/en_us/documents/reports/kyc-compliance-the-rising-challenge-for-corporates-special-report.pdf
2. “Industry Banking KYC Utility Project After-Action Report – Knowledge Sharing,” The Association of Banks in Singapore; https://abs.org.sg/docs/library/kyc-aar_15-nov-2018.pdf
3. “Bloomberg to Pull Plug on KYC Business Favored by Corporates,” iTreasurer; http://www.itreasurer.com/Bloomberg-to-Pull-Plug-on-KYC-Business.aspx
4. “KYC for Corporates: SWIFTNET,” SWIFT; https://universwiftnet.com/wp-content/uploads/2019/04/Universwiftnet_KYC4Corporates-Workshop.pdf
5. “Are you (KYC) registered yet?” UBS; https://www.ubs.com/microsites/news-for-banks/en/products-and-services/2018/registered-yet.html
6. “Stephanie Wolf, global head of financial services companies and governments for global transaction services, Bank of America Merrill Lynch – View from Sibos 2018,” The Banker; https://www.thebanker.com/video/v/6000812960001/stephanie-wolf-global-head-of-financial-services-companies-and-governments-for-global-transaction-services-bank-of-america-merrill-lynch-ndash-view-from-sibos-2018
7. “SWIFT brings KYC data management platform to multi-banked corporates,” SWIFT; https://www.swift.com/news-events/news/swift-brings-kyc-data-management-platform-to-multi-banked-corporates
8. Ibid.
9. “KYC for Corporates: SWIFTNET,” SWIFT; https://universwiftnet.com/wp-content/uploads/2019/04/Universwiftnet_KYC4Corporates-Workshop.pdf
10. “If at First you Don’t Succeed, Try a Decentralized KYC Platform: Will Blockchain Technology Give Corporate KYC a Second Chance?” R3 Reports; https://www.r3.com/wp-content/uploads/2018/10/first_succeed_decentralized_R3.pdf
11. Ibid.
12. “Case Study: How Synechron enabled 39 firms to complete a global trial of self-sovereign corporate KYC processes based on R3’s Corda blockchain platform,” R3; https://www.r3.com/wp-content/uploads/2018/09/US_27_Synechron_CS_v3.pdf
13. “Artificial Intelligence – the Ultimate Weapon to Fight Financial Crime,” RegulationAsia; https://www.regulationasia.com/artificial-intelligence-the-ultimate-weapon-to-fight-financial-crime/

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