A Call for Global KYC Standards

Author

Walther Eweg

Associate

The crisis of 2008 struck like lightning on a clear day. As often with big impact events, the rules of the game have changed dramatically. Conclusion: "This can't happen again".

Justin Fox wrote for Time in 2008: "Hardly anyone expected things to go wrong because things hadn't gone truly, pants-wettingly, oh-my-god wrong on the financial front in the U.S. since the 1930s. (...) the U.S. hadn't been through a serious panic in the memories of most everyone on Wall Street and in government. We began to behave as if one couldn't happen; we were told it couldn't."

Since the financial crisis there has been a great push for new regulations. We have seen the implementation of extended KYC with a more risk-based approach: Dodd-Frank, EMIR, MiFID, and focus on AML to name a few. This was, always has been, and it still is necessary. The health of the financial industry must assume utmost priority; and security and transparency stand at the very foundation of the future of our businesses. Why? Because if anything is important in our industry, it’s trust, and that must be rebuilt.

The increase of KYC requirements was championed by the FATF (Financial Action Task Force), a G7 initiative to develop policies to combat money laundering. The problem, it has been found, is that the FATF recommendations are interpretable, and that banks create their own versions of KYC procedures. Thomson Reuters has since reported that “a lack of common standards at financial institutions is negatively impacting corporates”, stating that 89% of corporates have had a negative KYC experience, and 13% have changed banks as a result. With KYC procedures changing regularly, clients are impacted by two factors:

  1. Different requirements per bank;

  2. New requirements every KYC cycle (based on a refresh due every 3 years).

 

Inconsistent KYC requirements and multiple touchpoints during the process is very time consuming for new relationships. It can, and has, crippled new business relationships and puts a strain on new trading deals. According to the Thomson Reuters survey, corporates have an average of nine regional banking relationships with the number rising to 11 when including global relationships.

2017

KYC

Source: Thomson Reuters - Sound Principle. Complex Reality. An independent survey discussing the real impact of global changes in Know Your Customer (KYC)regulation on CORPORATIONS

Not only does this show a very high number of documents per relationship, Thomson Reuters reports that 47% of the corporations asked stated that they had different banks ask for different documents and information.

 

Neil Jeans, Head of Policy and Regulation at Thomson Reuters, stated: “Many corporates with multiple banking relationships are scratching their heads and wondering what is going on. They are being touched regularly and inconsistently by banks requesting similar, but not the same, pieces of information. (…)”

 

The security of the Financial landscape at this stage seems built on unlevelled ground: it is costing more time and money, and moves away from the purpose of financial regulation and security. The system as it is, seems built on the fear of the authorities who issue multiple fines and accept settlements without actual convictions and guidance for setting things right for the future.

The Economist wrote in 2013:

“(…) A week of settlements, fines and provisions by big banks in Europe and America underscores just how ready authorities are to raise the whip hand and how quick banks are to pay up rather than go to court. Lost in the flurry of pay-outs is any clear adjudication of what banks have done wrong, and therefore any guidance for setting things right. (…)”

“(…) If you’re a financial institution and you’re threatened with criminal prosecution, you have no ability to negotiate,” Warren Buffett, an investor, said recently (…)”

There is an increasing call for consistency across the board. It has been done before with the Wolfsberg group - an association consisting of 13 Global Banks working together to create financial industry standards. This group has created an Anti-Money Laundering questionnaire which has been accepted by Financial Institutions across the industry. If this is possible at an AML level, why not at a wider KYC level? 

 

Steve Pulley, Global Managing Director at Thomson Reuters: “If corporates could upload whatever client information their banks needed, and enable their banks to have secure access whenever they needed it, many of their KYC challenges could be greatly reduced. (…)”

 

If there was clarity and one approach for each different client type, for every jurisdiction, banks would be able to focus on the client experience and the efficiency of their system. Competition would no longer be about who is less inefficient, but who is more effective and provides the better service. It would take the pressure off sales people, Client Onboarding, KYC and Compliance departments allowing them to focus on their core business. More than anything, it would create the transparency and security the financial industry needs and would succeed in creating that which the Wolfsberg Group and the FATF are aiming for.

Sources

https://www.economist.com/news/finance-and-economics/21588928-banks-must-pay-and-comply-even-if-it-isnt-clear-why-or-what-culture-fear

http://content.time.com/time/specials/packages/article/0,28804,1869041_1869040,00.html

Thomson Reuters - Sound Principle. Complex Reality. An independent survey discussing the real impact of global changes in Know Your Customer (KYC)regulation on CORPORATIONS

Walther Eweg

Walther joined FinTrU in 2017 from Citi where he was working in the EMEA Client Onboarding team. Over the past 4 years, Walther has built widespread skills in the Financial Services Sector particularly within the KYC and Customer Due Diligence areas for low, medium and high-risk clients.

 

He has extensive experience onboarding investors, trusts and high-profile clients and is highly skilled in building strong stakeholder relationships. Walther was responsible for all Onboarding Requests for the Equities desks within the EMEA region for Citigroup where he regularly liaised with clients, sales people, middle office, legal and compliance. Walther is experienced in working in a fast-paced environment, consistently meeting all service level agreement whilst always ensuring high level of accuracy and attention to detail.

 

At FinTrU, Walther works for a Tier 1 Investment Bank on a large-scale KYC remediation project. He is fluent in English and Dutch and basic conversational German.

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