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Know Your Customer

The KYC and AML landscape in 2017

Dominic Mac

27 Mar 2017

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Photographer: Rafael Marchante

As banks seek faster, more efficient ways to meet AML rules, we anticipate three potential Know Your Customer developments and consider how managed services are solving many onboarding issues.

Regulators around the globe are continuing to impose hefty fines on companies for failing to meet required KYC and AML standards.

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In March this year, financial intelligence regulator Austrac handed gaming giant Tabcorp a fine of AUS$45 million (US$35m), the highest ever civil penalty in corporate Australian history.

Watch our video — Challenges in KYC and AML in 2017

It served as a stark reminder about the consequences for non-compliance with laws on Anti-Money Laundering and counter threat financing.

At the same time, 32% of Australia’s financial institutions have reported increased engagement with regulators over the past 12 months, with 14% seeing a significant increase.

When it comes to the level of engagement with the regulator, 32% of Australian FIs reported increased engagement over the past 12 months, with 14% reporting a “significant increase”. This was significantly lower than the 51% of global respondents who reported an increase (17% reported a “significant increase”).

In Hong Kong, as with the picture globally, 51% of respondents have reported an increase in engagement.

Just over half of all Hong Kong FIs surveyed (51%) reported increased engagement by the regulator in the year preceding the survey, with 12% reporting a ‘significant increase’. This was on par with the number of global respondents who reported an increase, but a fair bit lower than the 17% of global respondents that reported a ‘significant increase’.

When it comes to adhering to the recommendations of the Financial Action Task Force, which aims to combat money laundering and address threats to the international financial system, only 44% of global FIs said that they had taken action to address the changes demanded by these new requirements.

How regions compare for addressing changes demanded by 2012 FATF recommendations

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Cheaper ways to onboard

In the face of these enforcement threats, banks tend to react by employing more people, but this increases their operational costs and is simply not sustainable.

What’s more, the time and costs associated with opening a bank account have become excessive.

Regulators in Hong Kong, for example, believe that these factors are making the territory uncompetitive relative to other regions and are therefore looking at ways to standardize procedures and increase competitiveness.

Banks the world over are seeking faster, cheaper ways to onboard and no wonder: a 2016 Thomson Reuters global survey reveals that banks are taking as long as 48 days to onboard a new customer.

They are also spending in excess of US$60 million per annum on KYC and client onboarding.

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Driving KYC adoption

In order for KYC platforms to work efficiently and meet the needs of all stakeholders, both the buy-side and the sell-side must be able to digitally interact.

To this end, the industry is investing a significant amount of money to enhance these platforms by ensuring that technology is seamless and user-friendly and meets specific business needs.

This is achieved by considering actual use cases and carefully designing features and functionality.

To support this ongoing investment, it is crucial to drive adoption and ensure support from both subscribers to KYC platforms and contributors from the buy-side community, including hedge funds, asset managers and corporations.

A KYC managed service, where corporates and buy-side firms can share their information with their banks, means being in control of information, providing documentation only once and not suffering duplicative requests for data.

Managed services future

As the market for KYC managed services continues to evolve, two significant areas of development are likely to involve:

  • A move towards creating differentiation according to bank existing value chain — in other words a full service KYC model versus a simple data play.
  • Significant investment in technology to improve operational efficiencies. The vendor industry needs to continue to improve in this area if they are to deliver the cost savings that the banks so desperately need.

Potential KYC solutions

And what about future developments on the KYC horizon?

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We anticipate three major developments:

  • The opening up of government-owned information sources to the private sector. These sources will enable KYC and AML checks to be completed more efficiently.
  • Continued operational technology efficiencies to enable us to build records faster and more cost-effectively for the banks. These are likely to leverage capabilities such as machine learning and artificial intelligence.
  • Increased leveraging of emerging technology — such as blockchain for KYC and the efficient management of digital identities — to further enhance efficiency and cost-effectiveness.

In addition, the recent acquisitions of Clarient and Avox have enhanced our own position as a provider of compliance solutions that enable financial institutions and their customers to conduct global business.

Through the acquisitions, the world’s biggest banks (Barclays, Credit Suisse, Goldman Sachs, JP Morgan, and State Street) are among those integrating their KYC solution into Thomson Reuters Org ID.

This combined operation will manage over 350,000 KYC records with 1.25 million managed legal entities in over 140 countries.

Our OrgID KYC Managed Service is able to identify and classify a client’s risk category, verify their identity, and screen all related parties to create a KYC record.

And unlike any other service provider, we continuously monitor for changes and automatically refresh client due diligence information.

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