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KYC: Outsourcing is the answer……?

Outsourcers are lining up to solve the banks’ and the corporates’ KYC problems with their particular solution. Toby Tiala, Programme Director, Equiniti KYC Solutions writes in Bob's Guide that, “Outsourcing KYC is a good way for banks to safeguard their continued regulatory compliance and control spiralling costs.” He points out that, “The average bank spends over £40m a year on Know Your Customer processes yet, in 2016 alone, bank fines worldwide rose by 68%, to a staggering $42bn.”

For corporates the costs may not appear as high, but they are very considerable and have huge implications when they “get it wrong.” Doing business with the wrong people can cause problems with their banks and the authorities, as well as causing all sorts of damage to their reputation, etc. KYC.com describe their solution as, “Standardise KYC processes and centralise operations around client onboarding and account management.”

Many KYC problems

According to recent research by Thomson Reuters in a survey of more than 1,100 corporate executives earlier this year, highlighted several problems with the KYC process globally:

  1. Lack of single KYC standard
  2. Contact with too many people within bank
  3. Companies not reporting material changes
  4. Security concerns about personal documents being lodged with their banks
  5. Compliance is taking longer - now taking as much as 30 days for a new client.

Lack of a single KYC standard

All the outsourcing providers of KYC services including: Thomson Reuters, Bloomberg, KYC.com, Equiniti, SWIFT, etc. all use different KYC standards. Only Bloomberg accept that it is not practical today to have a single standard, and they just accept any KYC formats that the banks and/or the corporates use. 

Also there is no dominant player, so banks and corporates will find they have to use more than one KYC outsourcing service. Who is responsible for the conversion? Which standard do you place your bets on?

Or do you just bet on one major player, and solve most of your KYC problems with that single supplier?

Who pays?

Most of the services assume that the banks or financial institions pay for the service, i.e. for corporates it is free. But does that mean that corporates loose control, don’t get what they specifically need? 

Security breaches

All the outsourcing  KYC suppliers claim the very latest security processes and systems, and say they have never been hacked. The problem is that in cyber-security there is always the chance of a security breach, ask Deloittes.

So what do you do if your KYC outsourcing supplier is hacked? Cover yourself by using more than one KYC supplier?

Who owns the data?

If a corporate puts all their KYC data on an outsourcing supplier, who owns the data which will be mixed with all sorts of other data from many different sources? If the corporate wants to change KYC suppliers, how do you know that all the data has been returned and deleted from the KYC outsourcing  supplier.

CTMfile take: Standardising KYC processes and centralising operations of client onboarding and account management with a third party is a huge transference of responsibility and exposure. No wonder banks and corporates are wary. Yet the problem is so huge, that using specialist outsourcing  KYC providers seems inevitable. 

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By Paul Stheeman on 6th Dec 2017:

In theory, KYC is just the kind of Treasury work which could be outsourced as it a task which does not add value to the corporation. Unfortunately, life is not that easy as for several reasons the process cannot be automated fully. The main hindrance is still the different standards banks have. Legal teams and company directors are already frustrated by having questions thrown at them from the corporate Treasury function. They will probably be even more annoyed when questions were to come in from third party KYC entities.

By Jack Large on 6th Dec 2017:

But the increasing amount of information and investigations needed in KYC (as it takes ever more time) means that KYC due diligence will become an ever growing burden on the corporate treasury department. How will the corporate treasury department cope?
Is there a solution that would satisfy you and the busy corporate treasurer?

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