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What every global bank should know about emerging KYC solutions

Lee Forsyth
Global Head of KYC Operations

Banks must navigate the maze of regulations or face costly fines. Lee Forsyth, Global Lead KYC Consultant, explains there’s a way through with new solutions.

No doubt you have noticed our industry is swimming in acronyms: AML, FATCA, UBO, FATF, KYC. This jumbled alphabet mash-up is the perfect symbol of the complex and often inscrutable state of regulatory requirements governing our industry.

But as confusing as they are, we all know these acronym-riddled regulations cannot be ignored. The costs and stakes for non-compliance have never been higher – for your financial institution, your shareholders and, most importantly, your reputation.

Just one example underscores the point: in roughly the last two years, financial institutions have been fined more than $10 billion globally for activities involving money laundering (AML), or doing business with persona non grata (KYC). This staggering number doesn’t include the almost incalculable damage done to their brands and reputations. Nor the breathtaking costs of remediations.

#AML, FATCA, #UBO, FATF, #KYC. Perfect symbols of the complex state of regulatory requirements governing #FI

There are positive developments in the area of KYC

The good news is that promising solutions are coming to the fore. Solutions that simplify and streamline even the most complex financial regulations.

And not a moment too soon. In the last decade, the mandate to know your customers and the sources of their income has become a Board-level concern. The reasons are many, but generally fall into two categories:

  • The focus on terrorist organizations and their sources of income, sanctioned entities and politically exposed persons.
  • The drive to clamp down on tax evasion so countries ensure they get their due revenue.

Current practices lag

KYC practices simply have not kept up with the rigors of today’s requirements. In many cases, KYC solutions originated in an era when compliance was a handshake or nothing more than checking boxes on a standard form. As regulations have increased, a patchwork of fixes and add-ons has added layers of complexity and cost. Which explains the emergence in the last couple of years of two models for optimizing – or even fully outsourcing – the KYC function: shared utility and managed services models.

The shared utility service model

Rather than each financial institution managing their own client document collection, they participate in a secure utility service provided by a third party, and pay only for the services and information they use. The financial institution provides pertinent customer information into a single portal that is then shared with participating financial institutions. New bank customers (also called end-clients) provide all required documents to one portal. And banks can access all the necessary information from the same portal once the end-client has granted permission.

The managed service model – and why it’s on the rise

A managed service model transforms the entire function by going far beyond collecting, storing and distributing customer information. It enables financial institutions to outsource the process to a third party, and in turn reduce and standardize the costs involved with KYC. By one estimate, a managed service model can cut internal KYC costs by 30-40%.

In return, banks get a true end-to-end solution driven by dedicated teams of KYC experts and analysts. A managed service provider typically delivers identity collection and verification, identification of the Ultimate Beneficial Owners (UBOs) and screening of the end-clients and all relevant related parties.

The result is that the financial institution will receive a screened and validated KYC record of their customers in accordance with a comprehensive KYC policy. These KYC records, or profiles (in KYC as a Customer, we call them Passports) are stored and maintained in a secure portal, where financial institutions can access them. These KYC records are then subject to on-going monitoring, screening and periodic review.

End clients still have control

Unlike many utility models, end-clients have complete visibility and control over the documents they provide, allowing permission and access only to the financial institutions they choose.

Finally, and importantly, bank customers have responded extremely positively to managed service models. No wonder: they have control over their data, as mentioned. But they also get on-boarded much faster. Plus there is no cost to them in a managed service model.

Bottom line? If you’re like most financial institutions, you’re grappling with KYC challenges in some form right now. A managed service model may be the perfect solution: freeing your capital, infrastructure and talent for crucial core business activities.

In this recent white paper Lee examines the costs and benefits of a transformative approach to KYC managed service, available for download from this website.

About Lee Forsyth

Lee Forsyth is the Global Lead KYC Consultant for KYC as a Customer. Lee and his team of KYC consultants work with the clients’ in-house Compliance and Operations functions to define the most effective solution to complement their existing KYC programs. Lee’s has worked in the KYC space since 1998 with Merrill Lynch. Lee has held a number of regional and global leadership roles in KYC operations with UBS, Goldman Sachs and Nomura where he helped redefine conduct of KYC and developed end-to-end business processes to minimize operational risk and increase transparency on KYC records.

KYC as a Service offers end-to-end client identity, verification, screening and monitoring