Remaining compliant with comprehensive Know Your Customer (KYC) requirements while managing regulatory change has become a significant operational consideration for regulated entities across the APAC region.
Emerging from this challenge are innovative solutions bringing together financial services firms, governments, well-established data and technology players, and new tech start-ups.
Regulatory trends in the last year have seen an increased emphasis on convergence of global Anti Money Laundering (AML) standards and trans-national enforcement collaboration. The implementation of the EU 4th Money Laundering Directive highlights this trend.
Local regulators in the APAC region appear to be following suit through enhanced AML requirements to better reflect international standards.
In view of this trend, regulated entities are increasingly seeking to leverage technology to provide innovative solutions to help to strength compliance within region.
Costs, time and effort
Remaining compliant in a developing regulatory environment has resulted in cost implications for regulated entities both in terms of time and resource.
Furthermore, an increased emphasis on the application of a risk-based approach in the completion of customer due diligence requires regulated entities to be cognizant of holistic risk drivers (e.g. high risk business segments and product lines) through the formulation of an annual risk assessment.
According to our 2017 KYC survey report, Know Your Customer requirements are becoming more stringent, and the globalization of commerce is resulting in more cross-border banking relationships.
Regulated entities are concurrently investing in staff and technology infrastructure to manage an increasing volume of client onboarding requests, while having to deal with an ever-changing regulatory environment.
In trying to solve the increasing volume and cost of KYC, banks are looking towards managed service models and investing in bilateral solutions.
These methods look to deliver on the benefits of Big Data and artificial intelligence (AI) technology to uncover potential new money-laundering risks, whilst simultaneously reducing overheads.
Keeping pace in a changing environment requires deep understanding of new requirements, along with the ability to manage the nuances of cross-jurisdictional differences in KYC requirements.
In addition to collaboration through benchmarking exercises, to better manage country variances, banks in some jurisdictions are coming together to help fight financial crime by designing country-wide solutions that create a common standard of account opening in that country.
This in turn may enable regulated entities to deliver a better client experience during the account opening and refresh process through convergence of standards.
According to a recent risk.net article, David Howes, Standard Chartered Bank, Chua Kim Leng, DBS Bank, and our very own Dominic May, are in agreement that it takes a lot of effort to standardize operations across the APAC region.
However, the benefits of such a solution outweigh the initial effort, as demonstrated by some of the more well-established global solutions, such as our KYC as a Service.
Governments are also looking to help tackle the challenges of KYC onboarding for banks and their clients, while ensuring they meet FATF standards.
Examples of this in Singapore and Hong Kong include funding available to financial services firms and fintechs, who are leading the way in generating solutions for digital identity, application of Distributed Ledger Technology (DLT) for KYC and automating collection of public data.
The EDB collaborates with our Innovation Lab based in Singapore across the fields of technology, data science and content, with a strong focus on enhancing our global services for the local market and specific customer-use cases, including across KYC and risk management.
Recent enforcement trends, including enhanced cross-jurisdictional collaboration, provide a potent reminder of the potential pitfalls of a weak AML program.
In addition to the more ubiquitous pecuniary fines, regulators are increasingly seeking deferred prosecution agreements (a voluntary alternative to adjudication in which a prosecutor agrees to grant amnesty in exchange for the defendant agreeing to fulfill certain requirements), resulting in increased costs associated with remediation as well as significant reputational damage.
Our recent KYC survey results suggest that under one-third (32 percent) of Financial Institutions (FIs) in APAC have proactively made changes to their CDD/KYC processes as a result of the 2012 FATF Recommendations. It follows that workable solutions need to be found if they are to remain compliant and avoid enforcement.
It is clear from the conversations at the 2017 ASEAN summit that, while a degree of uncertainty persists, FIs in the region are calling for collaboration and use of technology to improve compliance and enhance customer experience.
Our KYC as a Service addresses complications surrounding multi-jurisdictional AML requirements, dynamic screening and ongoing monitoring requirements, and KYC costs, by providing an end-to-end managed service.
In addition to bilateral engagement, KYC as a Service has successfully implemented a national ‘KYC utility’ in South Africa. This allows participating FIs to agree on shared policy standards and share records, realizing cost and time saving, and providing a better experience for clients.
KYC as a Service was the first managed service to adopt the Association of Singapore Banks’ risk and control requirements for outsourced service providers (OSPAR), and has recently achieved another successful OSPAR accreditation from PricewaterhouseCoopers (PwC).