Treasury Today Country Profiles in association with Citi

KYC is negatively impacting banking relationships

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As KYC requirements become increasingly onerous, what role can technology play in enabling treasurers to overcome the challenges?

Dubbed a ‘nightmare’ by more than one treasurer, KYC compliance can be challenging for a number of reasons. For one thing, the process of opening a bank account is often far from simple. “While in the past a bank account could be opened in a matter of days or in some cases within the very same day, we now hear stories from multinationals who struggled for months to open a single bank account, especially for those corporates who have operations in developing and/or high-risk countries,” says Kristof Segers, a manager at Zanders.

Another issue is the duplication of effort involved in KYC. All too often, treasurers are required to provide the same KYC information again and again – both to different banks and to separate departments within a single institution. Even once an account is open, corporates may receive recurring requests for KYC information throughout their relationship with a bank.

Compounding the challenge, the types of information requested can vary between banks and from country to country. Depending on the jurisdiction, companies may need to provide the passports, utility bills and bank statements of all signatories on a particular account. Requirements may also include directors’ information, such as names, addresses and dates of birth, as well as tax and legal documentation.

The lack of consistency between banks is a common challenge. “One issue is that there is no standardisation,” says Bart Claeys, Head of KYC Compliance Services at SWIFT. “The regulations are strict and they are continuing to evolve. At the same time, each bank will have its own internal risk appetite and will define its internal policies.”

Impact on bank relationships

These issues can have a significant impact on the relationship between corporate treasurers and their banks – indeed, in some cases KYC-related considerations may limit the pool of banks available to corporate treasurers.

At the same time, the costs involved in KYC compliance can prompt banks to ask whether some relationships make business sense. “If an institution performing KYC sees the cost go up to tens of thousands of euros, they will be asking whether that justifies the business opportunity,” says Claeys. “If it doesn’t, they might decide not to onboard the client.”

All of this comes at a cost. A global survey conducted by Thomson Reuters last year found that the costs and complexity of KYC are rising, with financial institutions spending on average US$60m per year on client onboarding and KYC processes – with that cost continuing to grow by around 19% a year.

Leveraging technology

The good news is that innovative technology is bringing new opportunities for efficiency. For example, the Thomson Reuters Org ID KYC Managed Service enables banks and their customers to exchange KYC related information, thereby reducing onboarding time. Other platforms include KYC.com, a joint venture between Markit and Genpact which enables corporates to upload KYC related documentation and give participating banks permission to access their data.

Another area of interest is the development of industry utilities. Particularly significant is The KYC Registry, a shared platform developed by SWIFT which enables correspondent banks to manage and exchange standardised KYC data. The Registry was launched in 2014 and is now used by nearly 4,000 banks around the world. While the Registry is designed for inter-bank rather than corporate use, Claeys says that SWIFT is increasingly receiving requests from corporates who are looking for solutions to their own KYC challenges. As such, this is an avenue which SWIFT is exploring.

“Clearly it would be easier to maintain one set of data instead of 15 or 20,” comments François Masquelier, Chairman of ATEL, the Association of Corporate Treasurers in Luxembourg. “Any solution that would improve the situation and reduce the burden would be welcomed by corporates.” However, as Masquelier points out, one potential obstacle is that most corporate treasurers prefer to wait until a finished product is available. “They don’t want to pioneer new solutions – but we do need a few pioneers to push this through,” he concludes.

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