Risk Management

Know Your Customer – the SWIFT benefits for corporates

Published: Nov 2019
Communication technology concept around a user

It goes without saying that Know Your Customer (KYC) has been the bane of corporate treasurers’ lives for many years. With more than 1.3 million bilateral correspondent banking relationships across the industry, and countless more for corporates, how is SWIFT meeting the challenges and the needs in this complex arena?

Listen to podcast

Following the 2008 financial crisis, regulators increased the requirements for banks to maintain increasing amounts of accurate KYC and Anti-Money Laundering (AML) information on all of their clients.

With KYC in the correspondent banking space being a serious issue for financial institutions needing to keep information up to date and secure, SWIFT launched the KYC Registry in 2014.

To date, membership of the registry has been open to financial institutions with correspondent banking activities, who use the registry to conduct KYC checks on their counterparties. Rather than every bank having to individually contact a counterparty to request KYC information, it can all be found in one place – the registry. More than 5,500 banks are currently using in the database.

But just as the financial community came together to solve the problem of KYC in correspondent banking in 2014, in 2017 the question was whether KYC was a challenge for corporates. “You can guess that the answer from the corporate community was a resounding yes,” says Sebastian Niemeyer, Senior Market Manager, Corporates & Supply Chain at SWIFT.

It’s not surprising. In the very same year, Thomson Reuters’ ‘Cost of Compliance’ report found that it took an average of 24 days to complete the customer on-boarding process. Global corporates struggled the most as they had multiple banking partners across the world in different jurisdictions.

So, with corporate treasurers crying out for an all-in-one solution to solve the KYC headache, global financial institutions and multinational corporations came together to agree upon one centralised utility – and the idea of extending the KYC Registry to the corporate segment was born.

It was with this in mind that Treasury Today met with SWIFT and a host of corporates and banks at Sibos 2019 to discuss the roll out of SWIFT’s brand new initiative which aims to solve the complex and time-consuming process of ‘knowing your customer’ for corporates.

Challenges

“Corporate treasurers cite KYC as one of the top three challenges they face in their bank relationships,” says Marie-Charlotte Henseval, Head of KYC Compliance Services at SWIFT. This is because many corporates hold accounts with several banks and subsidiaries, resulting in time-consuming and costly reviews of KYC information.

Unfortunately, data is too often disseminated across multiple sources, and it can also often be incomplete or out of date. As a result, banks have to repeatedly follow up and update information with corporates. It is hoped that by extending SWIFT’s KYC Registry to corporates in December this year, it will make the process more efficient for both corporates and banks.

Henseval continues: “This unique and well-established utility already delivers huge benefits to banks, and its extension to corporates will extend them the same advantages, with a standard agreed by the community and a secure platform enabling efficient data sharing.” The opening of SWIFT’s KYC Registry to corporates is also expected to address the inefficiencies arising from differing jurisdictional requirements and the lack of standardised data.

“Five years ago, when we received a KYC request from a bank, all we had to do was send through the registration paper,” says Jimmy Zhang, Corporate Banking Manager at Pepper Financial Services. “Now they want certified organisation charts, passports of all directors and documents that provide the source of wealth or funds.”

Although banks are asking more and more onerous questions, which has been brought about by the increase in regulations, Zhang recognises that KYC makes sense. “KYC is becoming more than just ‘know your customer’ – it’s a comprehensive overview of the counterparty – after all, due diligence is crucial in a world where you have to know who you are really dealing with,” he says.

Daniel Ochsner, Member of Management at Würth Finance International agrees: “A lot of banks, local banks in particular, approach our companies all over the world and ask for information, but sometimes they have inaccurate documents or outdated information, so the quality is not guaranteed.”

To take an example, much of KYC documentation contains confidential information, and corporates have to spend an enormous amount of time in fitting password protected order directives, taking secure copies of passports and official identification in order to send to different banks.

“It’s just tiresome,” said Zhang. “Sometimes one bank isn’t happy with the information we’ve supplied and they want additional documentation – whilst it may be completely acceptable to another bank.” This need to provide documentation several times in multiple formats to respective banking partners is not only cumbersome, it is both labour intensive and expensive.

“It’s very cumbersome for us too,” agrees Ochsner. “Because there’s no standard in place it causes a lot of work.” He points out that there is currently one part-time employee at Würth who does nothing but send KYC information to banking partners. “In the beginning this maybe took one or two hours a month, but with new regulations it’s increased year after year,” he says.

Learning from the past

Despite the challenges that KYC poses – challenges that SWIFT’s new roll-out aims to solve – there have been many proposed solutions for solving the issue of KYC over the past few years. Most have either struggled to deal with the increased complexity of the challenge,or were simply not fit for purpose. “In my view, the difficulty with companies that tried and failed in this arena is that they need the financial returns to be sustainable in the long run, unlike SWIFT, which is an industry cooperative,” argues Zhang.

SWIFT’s Niemeyer backs this up: “Being a cooperative, co-creation is in SWIFT’s DNA in a way that is invaluable for this kind of task. We have a strong track record of running a KYC initiative with 5,500 banks and have a proven ability to standardise a wide range of KYC requirements.”

He continues: “Everybody is suffering from their KYC experiences. Whilst there are good reasons for it, corporates are in desperate need to see a solution which makes it easier for them because, quite simply, corporates are reducing the number of their business partners – sometimes just due to the pain of the KYC process”

Is it a chance to come together?

“Absolutely,” says Niemeyer. “Jimmy Zhang and Daniel Ochsner, representing the global working group with its 34 members, have been active contributors in seeing this solution come to life. We sit all stakeholders around the table and really discuss the KYC issue for corporates; is this information relevant and needed by law? We come together and fine tune what is really necessary and come up with a more efficient way to do KYC just by talking to one another.”

A dream come true for all

According to John Colleemallay, Senior Director Group Treasury & Financing at Dassault Systèmes: “The KYC Registry for corporates will be a dream come true for all treasurers, considering the heavy workload involved in providing the same documentation several times in multiple formats to our banking partners. We look forward to having a secure, shared registry where we can more easily and rapidly complete the KYC processes.”

Rebecca De Cuyper, Transformation Management, Corporate Coverage EMEA, BNP Paribas believes that banks have long awaited a solution which standardises, centralises, mutualises and validates KYC data and documents. “If both banks and corporates adopt the concept and maximise the use of the platform, it would mean that treasurers will be able to redirect their banks to the platform and as such reduce significantly the bilateral exchanges on KYC info collection,” she says. As such the time spared will be used to further build the relationship.

BNP Paribas is an active contributor to the initiative. By seeking alignment with partner banks, and contributing to the standardisation and market engagement, BNP Paribas is investing these efforts to enhance its clients’ experience. “Our digital client lifecycle offer integrates SWIFT’s KYC in full compatibility with BNP Paribas’ own interface, ‘Welcome’, which allows our clients to initiate and follow digitally their onboarding and account opening process,” says De Cuyper.

Today, banks are already able to access correspondent bank’s information through a standardised questionnaire (referred to as the KYC baseline), including the latest Wolfsberg Correspondent Banking Due Diligence Questionnaire (CBDDQ). As a consequence, banks are now able to implement enhanced and reasonable standards when it comes to cross border and correspondent banking. Not only is due diligence being proved, it reduces the need for any additional data requirements. With the extension of the registry to corporates, banks will also be able to access their corporates client’s information through a standardised questionnaire, designed with banks and corporate treasurers from around the world.

But when looking at how banks in local jurisdictions apply KYC across the globe, one thing is clear – it is not universal. “What we have found at Pepper, being a multi-national company, many banks in many different locations interpret KYC differently and apply different standards,” says Zhang. “That’s one of the main problems that this new SWIFT Registry will solve.”

Approval certainly differs in different jurisdictions. For Pepper, it can take up to two months for banks in Hong Kong to approve KYC documentation, simply because of their requirement to see original hard copies, which can only be sent by post. In contrast, European banks are more open to electronic options, which cuts down the time to approve a counterparty by weeks.

A price worth paying?

The corporate universe is of course vast, so it was important for SWIFT to ensure that the challenge was approached in a way that ensured that the new solution met the needs of every corporate treasurer, regardless of the industry they worked in.

SWIFT’s initial focus will be the 2,000 corporate groups that are already connected to its network and their related legal entities, simply because they have tried and tested, long-standing relationships. However, the intention is to extend beyond SWIFT-connected corporates over time.

Once the new registry is finally opened to corporates, it is expected that SWIFT will start exploring collaboration with regional utilities, and partners that can be plugged into or integrated with the KYC Registry, in order to provide a full customer experience to banks. SWIFT’s ultimate goal is to create a one-stop-shop for banks to access information about all their clients, irrespective of their type.

However, in looking into the business model of the KYC Registry for corporates, it is still under discussion. “To maximise chances for success, we will start with the same pricing principles that are valid for the solution covering correspondent banking today. We will evaluate this model in due time, as the service matures,” says Niemeyer.

BNP Paribas’ De Cuyper believes that contribution should be for free while the business model should cover the costs through consumption fees, and, if required, annual fees for banks deductible from a consumption cap once this is achieved. “The pricing model should foster a maximum adoption in the shortest timeframe possible,” she says.

For Pepper’s Zhang, KYC for corporates being free is a blessing: “Businesses will be saving on head count because they won’t need to have a dedicated person to do KYC.” Ochsner agrees: “If it remains free for corporates it will save manual workloads so we can free up some resources on our side and invest these resources in other areas.”

The road ahead

So, where next?

“What we need to do is get in touch with regulators in different countries to demonstrate the value of standardisation through the SWIFT KYC Registry for corporates,” says Niemeyer. “We have identified a list of ten countries where we are starting talks with regulators to ensure that their feedback is taken into account. The reflection of their local standards will help make KYC for corporates the industry standard.”

Ochsner argues the case: “I think SWIFT is the only provider which will be able to really define a standard and make sure that they have the critical mass for both corporates and banks.” It is a sentiment echoed by Zhang. “SWIFT was formed by the banks, for the banks and it is a trusted brand which is able to negotiate with regulators so much better than a new start-up corporation can do.”

Zhang adds: “If you look at SWIFT’s correspondent banking model it has been accepted by all the Global Cash Management banks.” He continues: “For years now, we have been crying out for a standard path, and having a KYC for corporates system in place will give us the standard we so desperately need.”

Besides standardisation, mutualisation and centralisation of the KYC data and documents, the validation service and credibility of SWIFT as a trusted partner since it was founded in the 1970s is considered as a real added value to adopt this digital transformative solution.

So will it become industry standard? SWIFT’s Niemeyer is confident it will: “We are on the way to achieving it – we did it with correspondent banking which covered 70% of global KYC requirements back in 2014 – now we are at 90%, simply because of the ongoing dialogue with the industry.”

But according to Würth’s Ochsner, it is in the banks’ interest to participate in this brand new initiative. “We have actually had cases where we were trying to on-board a new banking relationship which we had to cancel because we were not able to define what kind of KYC requirements we had to fulfil,” he says.

“For some banks it may be too much of an effort to do business, but this new initiative will make it so much easier for banks to acquire new customers, and that’s why it’s so very important that they see this as a chance to participate. I think there are many more opportunities to further develop this platform and generate more value.”

Zhang couldn’t agree more. “We need the whole industry to work together – both the banks and the corporates need to come together to get KYC for corporates to work,” he says. “The more corporates that join, and the more banks that join, the more likely that this will become industry standard across the world.”

However, when all is said and done, Zhang is under no illusion in recognising that KYC adds no value to a business transaction, but there is an overwhelming need to minimise and streamline the process as fast, and as efficiently, as possible. “Instead of being bogged down by the tiresome KYC process, we will have transactions happening faster and that benefits everyone.”

It’s a sentiment echoed by Ochsner: “Many people have tried and failed, as it is not exactly a revenue generating opportunity for the customer, but it has to be done because there’s increasing regulation – we just need to get everybody on board.”

As SWIFT’s Niemeyer puts it succinctly, KYC for corporates is ‘not about competition, it is about collaboration’. It is a major rulebook that needs to be followed to really deal with industry challenges.

How will the game play out?

It’s in corporates’ hands.

To find out more, why not join the KYC Registry Engagement Group where you can keep abreast of all developments in the project.

All our content is free, just register below

As we move to a new and improved digital platform all users need to create a new account. This is very simple and should only take a moment.

Already have an account? Sign In

Already a member? Sign In

This website uses cookies and asks for your personal data to enhance your browsing experience.