Where specific challenges are concerned, Claeys notes that there is still a lot of physical document exchange involved in the bank to corporate space. “Sometimes these documents will need to be signed or notarised, bringing additional overhead,” he says. “This varies from institution to institution. Other banks may require a different format, or may require a certified translation of the document. What this means is that every corporate is having to redo the work with every bank and for every request.”
Marianna Polykrati, Group Treasurer of Chipita, a Greek based international food group of companies, points out that some the majority of banks today require corporates to provide details of their shareholding structures up to the individuals who own from 10% to 25%, depending upon either the country’s Central Bank policy or the bank’s own compliance policy. In some countries, the requirements can be even more arduous. “In Cyprus, there’s now a requirement that each relationship manager has a face-to-face meeting with each beneficial owner,” says Polykrati.
She notes that the requirements have ramped up considerably in the last two years: “Previously, we didn’t have to deal with so many issues – we simply provided a declaration. But now, for example, the National Bank of Serbia requires all the certificates of directors and beneficial owners of all the intermediary companies.”
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. Polykrati explains that while providing the required information may not be an issue for public companies, “for a private company belonging to a fund or to wealthy individuals, there can be a reluctance to provide the necessary data such as passport copies and home addresses, primarily due to security issues.”
For Chipita, which has 28 banking relationships across countries including countries India to Mexico, Ukraine and Kazakhstan, Serbia and Cyprus, Polykrati says that this has resulted in some restrictions in terms of the banks the company can work with. “In some cases the attempt to initiate a new co-operation is too bureaucratic, so we decide at the end to work only with banks which already have a relationship with our top level parent company, or a bank that our major shareholder works with,” she explains.
Counting the cost
At the same time, the costs involved in KYC compliance can prompt banks to ask whether some relationships make business sense. Claeys notes that as the costs incurred by banks in doing KYC continue to rise they are, in some cases, becoming prohibitive. “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,” he says. “If it doesn’t, they might decide not to onboard the client.”
ATEL’s Masquelier says that he has direct experience of this. “In one country, one of our banks took the KYC admin burden as a reason to decline opening an account for us,” he explains. “If banks start being selective in this way it will create a difficult situation – particularly for small and medium sized businesses.”
All of this comes at a cost. Chatrath notes that 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 on-boarding and KYC processes – with that cost continuing to grow around 19% a year. “A lot of financial institutions have invested pretty heavily in terms of technology and hiring,” he adds. “They are recognising the need to leverage technology in order to make the customer experience much better.”
Know your bank
Another consideration is that KYC isn’t a one-way street. Mark Crowhurst, a Treasury Director at PwC, points out that treasurers should be asking questions about how well banks are able to protect their KYC data once it has been handed over. “Corporates want to know how well their data is being managed – they don’t want it to be exposed on the ten o’clock news if someone gets hold of the files,” he explains.
But there are also opportunities to benefit from banks’ expertise in this area. Crowhurst says that many banks advise their clients about topics such as cyber risk, which can benefit both parties. “There’s a reason why KYC and AML are important,” he adds. “Treasurers should talk to banks about why the requirements are so stringent and ask how they can help them reinforce their controls.”
Despite the many challenges, there are a number of developments and initiatives which may help to alleviate the KYC burden for corporate treasurers. In some locations, regulators themselves may play a part in helping to overcome the challenges. Chatrath notes, “I’m very encouraged with the amount of co-operation I’ve seen across regulators in Asia. They tend to be very focused around what they can do to be more enabling of the economies they operate in, while fulfilling their responsibility to avoid introducing the unnecessary risk of contagion within their regulated institutions.” He adds that it is not uncommon to see a number of regulators across Asia talking to each other, learning from each other and sharing information so that they can collectively be better informed.
It is clear that technology can play a role in streamlining KYC compliance for corporates. According to Zanders’ Segers, “The easiest and cheapest way is to be equally stringent towards your banks with regards to the information they request and ideally corporates should aim to agree on a standardised approach across their banking partners to prevent replication of tasks. Some companies store the relevant KYC company data in spreadsheets which they keep up to date and share with all of their banking partners on a predefined schedule.”
Innovative technology is also bringing new opportunities for efficiency, and there is considerable interest in how such developments can be leveraged to streamline the processes associated with KYC and compliance as a whole. 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.
Aside from solutions specifically designed to improve KYC processes, technology companies are also exploring the use of technology to overcome wider compliance challenges. “We are trying to help as much as we can through our technology solutions and trusted content solutions,” comments Chatrath. “For example, we’ve used machine learning and augmented intelligence to be able to identify fake news from trusted news, which helps us to get to things much faster using social media.” He adds that the company is involved with many proof of concepts around new technologies including digital identity and distributed ledgers.
Meanwhile, Claeys says that other solutions more traditionally adopted by banks, such as sanctions screening and name screening solutions, can also play a role in supporting corporate compliance efforts. “We’re seeing interest from corporate segments in getting more transparency and controls in place in order to avoid any problems later on,” he adds.
Beyond the solutions currently available, other developments could potentially help to address KYC challenges in the future. For one thing, PSD2 may provide more opportunities to make ongoing KYC processes more efficient. “Under PSD2, with a corporate’s permission, a bank could access the corporate’s bank statement from different banks,” explains PwC’s Crowhurst. “This allows the bank to look for unusual patterns in transactions.” He notes that developments such as blockchain and biometrics may present further opportunities for improvements around management of AML/ KYC data and verification.
Another area of interest is the development of industry utilities. SWIFT’s Claeys explains that until now SWIFT has focused on the inter-bank correspondent banking space, developing solutions to increase efficiency and transparency in KYC compliance. Particularly significant is The KYC Registry, a shared platform 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.