EXPERT TALK
DOES IT MATTER HOW YOUR FINANCIAL
INSTITUTIONS MANAGE THEIR KYC/AML
PROCESSES?
OPENING A BUSINESS BANK ACCOUNT USED TO BE
SO EASY
Question: how many banks does your firm do business
with? If you are like most of your peers, the answer is an
average of five – and in some cases up to quadruple that
number. Each of these banks needs to be compliant with
the multitude of regulations governing Anti-Money
Laundering (AML) and Know Your Customer (KYC), whilst
simultaneously complying with the Foreign Account Tax
Compliance Act (FATCA).
As regulators move from a tick-box to a risk-based
approach towards compliance, banks are increasingly left
to interpret AML regulations and comply with KYC
requirements as they see fit, leading to different banks
developing different processes for client verification. The
net result is that clients are often faced with a situation
where they are required to provide client identity
information on an average of five times – each time
according to different specifications. This duplication of
effort is both time-consuming and costly.
THE BUSINESS MODEL HAS CHANGED
Long gone are the days when bankers knew all of their
clients personally or via a referral from a mutual party. The
explosive growth and globalization of banking means that
today, whether you are a trading firm, corporation, hedge
fund or asset manager, the due diligence process required
for KYC compliance can take up to 6 months.
There are many more steps to follow and countless
additional documents are required. All of this adds time to
an already time-consuming process. Research has
revealed that some clients are asked to submit up to 100
documents (either directly or through external sources) just
to open a bank account1. And it’s not just opening the
account that is time-consuming; there are also intermittent
and ongoing requests for client identity documents to
ensure that banks maintain an up-to-date single view of
your organization. In addition, the Financial Action Task
Force (FATF) recommended in 2012 that it should be a
requirement for an organization to provide their bank with
the most up-to-date legal entity information available at
any given time.
It’s easy to forget that you are the client in this scenario.
Remember that you have every right to expect a positive
customer experience when dealing with your banking
counterparties.
HAND OVER YOUR MOST STRICTLY CONFIDENTIAL
INFORMATION … AND VISIBILITY AND CONTROL
There is also the crucial matter of data security and privacy.
Essentially, once strictly confidential information is shared,
the client no longer has control over how that information
is being shared or whether any safeguards are in place.
There is no audit trail and clients do not know who is
consuming their information – or why.
Cyber crime is a growing global problem and regulators
require organizations to demonstrate that they are
proactively managing these threats.
COMPLIANCE IS NOT OPTIONAL
Financial institutions are increasingly coming under
pressure from shareholders, regulators and customers to
find the balance between profitability and compliance.
Since the financial crisis of 2008, which has largely been
blamed on the failure to properly regulate the financial
industry, banks have been subjected to ever-more
extensive regulations around AML and Counter-Terrorism
Financing (CFT). As a result, they are mandated to carry
out extensive and ongoing KYC checks on all their clients.
More recently, regulators expect banks to know - and
document - their clients’ sources of income, as well as the
tax consequences of their activities. This is governed by
legislation such as FATCA.
This has naturally led to banks requiring more information
from their clients and, because the stakes are so high,
many of them are erring on the side of caution and
gathering too much rather than too little information. It is
understandable that banks are taking this approach given
that the costs of non-compliance are punitive, both in
terms of fines and, more importantly, reputational
damage. One telling example is that in roughly the last
two years, banks have been fined more than $10 billion
globally for activities involving money laundering, or doing
business with persona non grata.
1 Fenergo, 2015, New Research Study Measures the Time, Cost and Challenges of Client Onboarding. [online] Available at: http://www.fenergo.com/top-menu/news-events/press-releases/newresearch-study-measures-the-time-cost-and-challenges-of-client-onboarding.html [Accessed February 2015]
EXPERT TALK
BANK CLIENTS FACE A MULTITUDE OF ISSUES –
SOME COSTLY – RELATING TO BANK KYC
REQUIREMENTS:
• The documents you need to provide can reside in several
different locations within your company. Finding,
extracting and organizing these documents has become
increasingly burdensome and time-consuming.
• The sheer number of documents required has also
increased exponentially. Because the number of
regulations has escalated and banks need to ensure that
they remain compliant, they tend to request more
information, rather than less.
• In addition, there is currently no universal global KYC
standard, so each bank relies on its own interpretation of
AML/KYC requirements. As a result, each requires
different documentation from institutional clients.
• With identity theft and cyber crime increasing, there are
concerns surrounding current methods of sharing client
identity documents, particularly via email. If not
encrypted, these messages are easy to hack. In addition,
organizations want more visibility and control over who
can access their information before and after it has been
sent to the banks.
This is all leading to increased effort, time and cost –
simply to open an account and maintain a business
relationship with your bank FORTUNATELY, THE INDUSTRY HAS WOKEN UP TO
THESE ISSUES
Within this troubled space, new solutions have emerged to
make it easier for clients - and banks - to cost-effectively
comply with KYC requirements. While some of these
solutions are bank-driven and paid-for, there are powerful
direct benefits for end-clients.
Let’s take a brief look at these solutions and discuss what
we view as the most promising in terms of delivering in
three key areas:
• Does the solution save you time and money?
• Is it easy to use?
• Are you given control over who has access to your data?
SHARED UTILITY AND MANAGED SERVICE MODELS: FROM ‘MANY-TO-MANY ‘ TO ‘ONE-TO-MANY’
FROM THE COMPLEX STATE OF TODAY’S ‘MANY TO MANY’ KYC PROCESSES
ACCELUS ORG ID PIONEERED A STREAMLINED ‘ONE-TO-MANY’ KYC PROCESS
Thomson
Reuters
Accelus Org ID
Generally, for a myriad of sound business reasons, financial
institutions are increasingly looking to outsource parts of
their KYC function – or in some cases, the entire function.
KYC processes have become so expensive and complex
that they are draining resources, talent and money from
core business and revenue-generating activities.
Institutional bank clients are also keen for their banks to
adopt different models, for the simple reason that current
processes are not meeting their needs.
The question that banks are increasingly asking is not IF
they should outsource or optimize this service, but WHAT
model will best serve their needs. The options fall broadly
into two camps – a utility service model and a managed
service model.
SHARED UTILITY SERVICE MODELS
Several shared utility options have appeared in the last 12
to 18 months, many of them joint efforts between banks
and third parties.
Rather than each financial institution managing their own
client identity document collection, they participate in a
utility service provided by a third party and pay only for the
services and data they use.
The financial institution uploads pertinent customer
information into a single portal that is then shared with
participating financial institutions.
THE MANAGED SERVICE MODEL: THE END-TO-END
KYC SOLUTION
A managed service model transforms the entire function by
going far beyond collecting, storing and distributing
customer data. It enables financial institutions to outsource
the process to a third party, and reduce and standardize
the costs involved with effective KYC. By one estimate, a
managed service model can cut internal KYC costs by
30-40%.
STREAMLINE PROCESSES TODAY
The industry has recognized the challenges plaguing the
current KYC landscape, and has developed a fresh
approach. Simply put, financial institutions and their clients
recognize that spiraling costs, workloads and processes are
no longer sustainable. Recent announcements in the news
have validated this and we are seeing the first financial
institutions adopting KYC managed service models.
This is a true end-to-end solution, driven by dedicated
teams of KYC experts and analysts who monitor and
update KYC records. These records are then stored and
maintained on a secure portal where financial institutions
can access them.
Your organization can use KYC managed services models
to streamline the provision of client identity documents to
your financial institutions. Organizations can upload their
documents once to a secure web-based portal and
distribute their information to selected financial institutions
only.
The benefits to banks are clear in terms of compliance,
cost-savings and resource allocation, but there are equally
compelling benefits for end-clients.
These solutions bring real value to your business and truly
enable you to improve processes and regain control of your
legal entity information.
HELPING YOU REDUCE COMPLEXITY, SAVE TIME
AND GAIN CONTROL
Firstly, with a managed service, you can consolidate and
upload your client identity documents on one single secure
portal. From this portal you can then distribute the
documents to all the financial institutions with whom you
transact. This eliminates the duplication of effort involved
in providing separate KYC documents to each financial
institution. The result? A reduction in the time and
resources required for effective on-boarding.
THE TOP FIVE BENEFITS OF THE MANAGED
SERVICE MODEL:
1. Operational efficiency – maintain one set of documents
that can be shared with multiple financial counterparties,
reducing duplication and administrative effort
With managed service models, you have complete visibility
and control over the client identity documents you provide,
allowing access to only the financial institutions you
choose. You know exactly who is viewing your identity
documents, and with whom they are being shared.
4. Speed – streamline and accelerate processes when
transacting with financial counterparties
In addition, because managed service providers are
independent and usually have core strengths in data
management, they can effectively manage data privacy
and security.
Finally, managed service models are free for the endclients of financial institutions.
2. Security – benefit from secure storage and data
dissemination, and an audit trail
3. Control – gain full control and visibility over who can
access and view your documents
5. No cost – store, maintain and distribute your identity
documents at no cost
These top five benefits reinforce two important points:
firstly, it does matter how your financial institution
manages their KYC processes, but secondly, how you
respond is also crucial. By adopting these new industry
solutions - such as KYC managed services - you can
improve operational efficiency, and establish effective data
control and security processes, allowing your organization
to focus on its core revenue generating activities.
The views and opinions expressed in this paper are those of the author and do not necessarily reflect the official policy or
position of Thomson Reuters.
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