KYC registries becoming useful data utilities

Banks are now aware that having a single source of reliable, accountable client information has further applications beyond the KYC process.

Kelvin Dickenson, ‎vice-president, head of compliance and data solutions at Opus, says there have been instances of banks using its Alacra Compliance Professional (ACP) software-as-a-service solution to assess other areas of their business, adding: “We have seen cases in the US of banks using the platform for the credit evaluation process.”

He says ACP can also be used in sanctions checking against individuals by looking into the ownership structure of a listed company. This is helping to facilitate the breakdown of barriers between business lines by sharing information.

“There is a general movement in the industry of banks realizing they can make efficiencies through bringing together their financial crimes tasks,” says Dickenson. "Previously these steps would be taken by each department in siloes.

“These steps towards integration have emerged as banks realize the overlapping requirements of different regulations they must comply with, the risks they need to manage and the need to understand who they are working with.” 

Mark Davies, global head of data services at Thomson Reuters, says this is not yet a widespread trend, but the largest banks are beginning to realize the benefits.

“We are starting to see a number of the tier-1 banks align their KYC and reference data functions under common governance and also aligning technology stacks," he says. "This is a clear indication that the concept of ingest once and share broadly is a common aim.”

Reetu Khosla, global head, client lifecycle management, on-boarding and KYC at Pegasystems, agrees that at a time when there are greater demands on data collection and resources, having one bank-wide agreed source of information saves time and effort.

“There are questions about how to consolidate data," she says. "Banks do not want to go through collecting the data and documents needed for due diligence multiple times. They do not want to subscribe to multiple utilities, which may have conflicting information.  

“Banks want to know how they can use utilities in conjunction with customer lifecycle management technology from front and back office to optimize data, and on-board clients more quickly. There is the goal of reducing the on-boarding time to a few days, or even less.”

The possible benefits extend beyond the confines of the bank. Sharing verified and trusted information internally also helps the client, who does not want to have to provide the same documentation multiple times. It also helps at a time when client expectations around transparency and speed are rising. 

Says Khosla: “Customers do not want to provide the same information multiple times. They also have less patience than in the past – they now want the updates on where exactly they are in the on-boarding process.”

Speeding up the process can assist with customer retention, or even upselling additional services. 

Khosla adds: “Companies want to know why they can’t trade in another jurisdiction when they have already been though a 100-day on-boarding process, and now have to do it again. They can just as easily go to another bank and start the process again there.”

In compiling KYC information, banks can look to their own internal data resources when dealing with an existing client. 

Thomson Reuters' Davies says a lot of the information needed has already been captured by other departments, adding: “While KYC processes typically require extensive data and proofs/evidence, many of the same data points about the counterparty are being used across a bank. 

"They are being used to drive risk concentration through monitoring with country and sector information, ownership hierarchies and aspects of regulatory reporting using identifiers like LEI [legal entity identifier] and regulation-specific sector classifications.”

Davies adds that the process can be started from the first touch point with the client, but the need to maintain data hygiene continues throughout the client relationship.

“Many firms are now looking to capture much of the critical content for reporting at the on-board process and persist it through to reporting systems, where it is also needed. 

"The challenge here, of course, is maintaining that content over time, through corporate actions, mergers etc, and that is an area where KYC market solutions can play an important role in ensuring that downstream use cases are fully understood alongside the immediate KYC needs.”

Although the KYC registries have been slow to take off, steps such as these demonstrate how having a repository of client data that is both high quality and from reputable sources has obvious attractions across bank departments. The move is also pre-empting possible future requirements. 

“Regulators like the consistent application of the same standards,” says Khosla at Pegasystems. “If the underlying party comes into the bank through another business line, in the past they would be in siloes and the connection would not be made. Now they can check that the due diligence is already in the system, and the front- to back-office technology is robust enough to manage that.”

Having that robust technology is a vital step in successfully collating and disbursing data. 

Khosla says: “The middle office can capture the data and make it available when it needs to be applied. For example, if a client wants to trade overseas, the due diligence can be provided upfront and the system can recognize if the information is still valid. This would enable the company to transact immediately and would not need to provide any additional documentation.”

Future technological innovation could bring about further efficiencies. Artificial learning can reduce the amount of time that is spent on tasks that bring little value, while helping decisions to be made using the accessible data. It also reduces the risk of human error. 

Dickenson at Opus says: “When checks are carried out manually, there are opportunities for error or omission. Should a step be missed out, the process is not sufficiently completed. The risk can be miscalculated or categorized, leaving the bank vulnerable to fraud, credit losses or money laundering.”