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| Swift's operating centre. Source: Swift |
The onset of know-your-customer regulations has created a new set of business opportunities to help banks and corporates streamline labour-intensive processes.
Swift appears to have taken the lead in KYC regulation in the correspondent banking space with its KYC Registry, taking advantage of its status as the lifeblood for financial transactions within the banking industry. The KYC Registry was established with 12 global banks, and a further 10 large institutions following on during the pre-launch phase. The programme goes live next month.
Ahead of the official launch Swift has further developed its offering with the implementation of Swift Profile, a report comprising an overview of an institution’s correspondent banking activities. Profile uses Swift’s data to define where risks might lie within jurisdictions and gives an overview of what the correspondent banking activities are within individual banks. Swift states this facility will create a greater degree of transparency and more detailed information that can be shared between counterparties.
The focus on larger banks has raised questions about how expansive the network could be in a global market, but Luc Meurant, head of banking markets and compliance services at Swift, explains that smaller institutions are also keen to be involved: “A number of smaller banks have reached out to us proactively as a way of demonstrating their commitment to full KYC transparency and compliance.”
This compliance goes deeper than correspondent banking, and banks should recognise KYC is now integral to their operations, say analysts.
In another example of service providers coming up with KYC-compliance solutions, Markit and business outsourcing solutions provider GenPact are offering KYC Services, developed with Citi, Deutsche Bank, HSBC and Morgan Stanley as founding banks. Launched earlier this year, KYC Services recently announced it now has over 600 buy-side firms and corporates using the service. Using US and UK regulations, an operational standard was created that can be adapted to different regions. There is a lot of crossover between jurisdictions and efforts are being made to assess how to plug any gaps.
Yasmeen Jaffer, director, global head of business development at Markit, says: “KYC used to be viewed as a competitive advantage, but banks need to change that mind-set. When they started to compare their processes they were surprised by how similar they are.”
Breaking down the siloes both within and between banks is one of the vital elements to creating a workable system.
Steve Goldstein, CEO of Alacra, says: “Complying with the regulations is now a different animal. Banks should be able to identify which clients pose the highest risk and spend the most time on them and less on those that create fewer concerns.”
Alacra, a specialist in data services, also has its Compliance Enterprise service that enables the streamlining of regulation, including KYC. Potential clients can be checked and individual points investigated before a decision is made. Through pulling together information about corporates, it reduces what can be the repetitive task of enquiries for the same documentation from the same organisation.
Importantly, pooling the information into one central depository has its benefits for the corporates too, as they no longer have to submit multiple files each time they are requested by their various banking partners, which can happen many times throughout the year. The cost of compliance can also be quite big for the corporate. While the banks might have dedicated teams, the burden typically falls on the legal department in a corporation, which often lacks specialized knowledge.
Market participants say the next step is for providers to collaborate to offer a comprehensive service to banks.
Jaffer says: “It is still early days, but there is the potential for interoperability between the different KYC providers.”
The banks might need to operate with three or four different companies to manage their KYC obligations, but this is considerably less than the hundreds of documents that need to be received and assessed when working with each individual corporate client.
Goldstein says: “The banks will still need to go to perhaps three or four services to meet all of the KYC standards, but this will be a lot more efficient than what is in place now.”