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KYC services expand to include due diligence across all regulations and regions

The cost to the top 10 banks of just the KYC process has been estimated at $1bn/month. The annual global cost to the financial services business of Know Your Customer administration combined with regulatory compliance for all the sell side and all the buy side must be hundreds of $bns. The biggest part of this gargantuan cost is from the duplication of processes and systems world-wide. Eliminating the duplication for both the buy-side and the sell-side is where the savings are going to come from.

Corporate treasurers have long dreamed of a KYC solution where they could just securely send the information about their company once, and to only one place. Banks in turn can use the utility to access this information for refresh or the start of a relationship with their corporates. The problem of bringing the company KYC information together has been bad enough, unfortunately, the continued development of new financial service and banking regulations, which often vary by country or region and their constant changes, has made it far worse. There are companies who are aiming to provide KYC due diligence support across all regulations and regions for both the buy-side and the sell-side. This will take time. However, it is starting to happen. end-to-end solution for KYC data management and compliance is a joint venture set up by Markit, a leading global diversified provider of financial information services in 2014, and Genpact Limited, a global leader in transforming and running business processes, operations and technology. The service was designed in partnership with the original founders - Citi, Deutsche Bank, HSBC and Morgan Stanley - to standardise and centralise the collection and management of KYC data for financial institutions to speed up client on-boarding.

The service is based on a three step process:

  1.  development of common global data standards and policy
  2.  mutualizing costs
  3.  sharing the information.

Today has 12 member banks (10 of top 12) and 2,000 corporates and asset managers using the service.

For the basic service, the subscribers - banks and financial service providers - pay for the service, with there being no charge for corporates and asset managers contributing their information.

1 - Global KYC data standard

The data standards, were developed by the founder partners and accepted by all additional subscribing banks. The industry standard policy ensures that corporates understand up front what documentation and data is required to fulfill their KYC requirements with their banks and broker/dealers. It centralises the process so that the interaction for managing their KYC information is between them and the operations team and not bilaterally with each bank counterparty.

Baseline collection standard

The baseline collection standard are comprised of entity data attributes and supporting documentation collected from the corporates via the secure platform and from public sources. These are then validated and shared with the subscribers via an entity profile report based on permissions set by the corporate. The entity profile report takes into account all identification and verification requirements for that entity including, ownership structure, beneficial ownership, key controllers, nature of business, sources of wealth and other required questionnaires, etc. Additional due diligence can be required in high risk countries and industries. These profile reports are refreshed by annually. operates a single baseline policy standard globally. For different jurisdictions with different policy standards, apply the global baseline policy and then provide what is needed for a top up in any given jurisdiction. The baseline is typically 80% to 90% of the data collection globally and the top up makes up 10 to20% and includes all data privacy requirements for that jurisdiction. In Hong Kong and Singapore for example, both require a certified true copy in order for a document to be approved. support the management and authentication of that process.  

Country coverage supports all domicile jurisdictions in English and the following languages from a translation perspective: English, Portuguese, Spanish, Hindi, Dutch, French, German, Italian and Polish. plans to incorporate all languages with Korean, Cantonese, Mandarin, Japanese and Thai on their roadmap for the next 18 months and beyond.

From a regulatory policy perspective, now covers the US, UK, Australia, Hong Kong, Singapore, Germany, and France. Coverage of regulations in Canada is to be built later this year.

2 - Mutualising costs enables its customers to mutualise or share costs and minimize the impact of future regulations on the business. For a who has relationships with some 20 different banking, who are looking for information on KYC, regulation, tax, margin and legal credit agreements. That means there will be at least five separate interactions with an institution which is then multiplied by the number of documents required. By standardising and streamlining the efforts, corporates can interact with once and each bank can then consume identical information which is validated through the service.

Citi, Deutsche Bank, HSBC and Morgan Stanley participated in the design phase and launch of the service in 2014. BNP Paribas and UBS have also joined the service along with three other institutions and a further four are in the contract stage.

3 - Reuse

After uploading all the standardised KYC data required, corporates and asset managers have complete control over which banks and financial service suppliers can access the data. Reuse of the uploaded data eliminates the need to re-input the data for other suppliers and reduces the time to start using a new service.

Reusing the data also minimise the impact of financial regulations because the standarised data supplied to base covers what is required by the current and upcoming regulatory KYC requirements, including Dodd-Frank, Emir, Mifid II and CRD IV.

How corporates use the service aim is to insulate the corporate from the administrative part of the process of signing up for services - tax, regulations, collateral management, product agreements rather than asking is my account open yet? am I ready to trade? can you update this document, etc. Corporates can then focus on doing their job, e.g. raising and managing liquidity.

Using the complete solution

A good example of using the full solution is how PIMCO have selected and Markit to provide a complete regulatory and compliance solution to support KYC, AML, tax and credit and legal agreements. PIMCO benefits from the ability to reuse quality data and documentation across all of its onboarding functions and communicate with its counterparties. The firm also has full transparency across workflows and information in a single, centralised location.

Corporate workflow support enables corporates to upload and maintain their KYC information required by bank counterparts in one centralised location with complete control of who is permitted to use the information.  Corporates register each of their entities and upload documentation in line with industry policy standards. use this information to create a profile that is used by the subscribing banks based on the corporates instructions.

Role and future believe their role is to provide an ecosystem that enables increased efficiency across the whole KYC space. Jon May, CEO, explains, “Our job is to insulate corporates and asset managers from the administrative burden of KYC on-boarding and regulatory compliance today and in the future by continuing to add on for new regulatory initiatives such as MiFID II and uncleared margin.”

“We are also looking at the potential of blockchain and how that can be used to solve KYC challenges. As we continue to build out our service we will continue to look to branch out to other jurisdictions and create localised policies based on client need.” In the future May also sees opportunities to expand their business model, “We also plan to provide support and services in the post-trade side of financial transactions by leveraging our existing offerings such as MarkitSERV.”

CTMfile take: KYC services are no-longer just restricted to client on-boarding, they have naturally expanded to cover regulatory compliance as well. Third party vendors are well placed to dominate this space with their secure ecosystems and platforms. The issue for corporates, as always, is: Whom do you trust to store and manage your KYC and regulatory data. No-one? Third parties? If third parties, then: what type of organisation do you/will you trust? Vital decisions are now being made in corporate treasury departments which will affect the efficiency of financial transaction processing around the world.

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By Paul Stheeman on 7th Jul 2016:

This does sound promising, in particular from a corporate perspective. There is an urgent need to reduce the strain on corporate Treasurers resulting from current uncoordinated KYC processes. Let’s hope that common sense prevails and that further standardization takes place.

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