September 24, 2019

KYC or better Customer Due Diligence and the related work of Transaction Monitoring are often considered cumbersome and painful. Not to mention that financial institutions can be fined heavily for not getting it right.

The idea of a KYC utility – shared amongst FIs – keeps popping up, recently in The Netherlands and the Nordics (https://www.riskscreen.com/kyc360/news/dutch-banks-team-up-to-fight-dirty-money/) and not that long ago in Singapore (we wrote earlier about that here https://www.i-kyc.com/the-failure-of-the-kyc-utility-project-in-singapore-a-practical-view/).

Despite the failures and the initiatives that don’t get any further than the drawing table, many FIs and regulators still think it’s worth a try. Let’s have a look at the possible reasons and success factors.

 A KYC utility makes sense

FIs in the same jurisdiction need to adhere to the same regulations and even though internal controls, systems, risk appetite and policies might differ, likely a lot of the work is similar if not the same. That might mean a duplication of work so cost savings are possible.

Quality

Money launderers don’t do all transactions with one bank; what looks perfectly acceptable to one FI might not be so acceptable if the transaction behaviour is viewed across all the banks that the client is using. By nature, the knowledge on a client will improve if banks can see all the clients’ activities across organisational boundaries.

Speed

Everyone who has dealt with onboarding of clients will have heard the comment “Why do I need to provide that documentation? Bank ABC doesn’t require that either.” Aligning onboarding requirements and shared CDD will increase the speed of onboarding and increase customer satisfaction.

There are plenty examples of off-shored centres, external companies and internal service centres that have proven that processes and policies across jurisdictions can be serviced in and by one and the same team. There are no inherent reasons that make a KYC utility impossible to realise.

It can be done, we’ve seen it working, we’ve managed these service centres. It all comes down to the (political) will to make the KYC utility a success, the ability to overcome differences in the participating FIs and the power to execute in the utility itself.