Banks urged to improve compliance-burden cooperation
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Banks urged to improve compliance-burden cooperation

Onerous KYC regulations are imperilling trade financing and the flow of credit to emerging markets. It is high time banks boost cooperation, aided by technology, to address the challenge, as industry efforts are found wanting, say treasurers.

Regulatory compliance is exacting a heavy toll for banks around the world – particularly where know your client (KYC) and anti-money laundering (AML) regulation is concerned.

KPMG’s 2014 global anti-money laundering survey found that KYC is a key area of concern for banks’ AML and compliance professionals, with 70% of respondents reporting they had received a KYC-focused regulatory visit.

In the past couple of years, KYC requirements have become more stringent and complex, making compliance a more time-consuming exercise. However, other factors are also contributing to the increasing demands of KYC compliance.

Paul Taylor, head of sales, GTS EMEA at Bank of America Merrill Lynch (BAML), points out that many corporations have themselves become more complex in the past few years – leading to additional KYC requirements.

“Twenty years ago, the idea that we would have clients doing business with us in as many national, legal and regulatory jurisdictions as they do today would have seemed unimaginable,” he says. “So inevitably the whole area of KYC is more nuanced than it was before.”

The rigours of compliance can have a notable impact on the relationship between banks and their clients. A survey published last summer by the International Chamber of Commerce found that 68% of respondents had declined transactions as a result of KYC and AML regulations, while 31% had closed down correspondent account relationships.


Research conducted by Asian Development Bank (ADB) likewise found that onerous KYC/AML requirements were identified by banks as an impediment to filling market gaps for trade finance.

“Complying with overlapping KYC/AML requirements has become so costly and laborious that financial institutions are terminating relationships in countries, especially emerging markets,” says Steven Beck, head of trade finance at ADB.

KYC is a headache for banks – but they are not the only ones finding KYC a burden. For corporate customers, providing the necessary information again and again can be time-consuming, particularly for companies working with multiple banks and operating in a number of different markets.

In some cases, they will receive demands for KYC information from multiple different parts of the same bank.

Enrico Camerinelli, senior analyst at Aite Group, points out that when companies begin doing new business with foreign partners, the resulting KYC profiling exercise might be quite daunting for the treasurer – as well as for the bank.

Such are the demands of KYC compliance that the process of opening a single bank account can take several months to complete.


Damian Glendinning,
president of ACT, Singapore

“This is a highly bureaucratic and repetitive process, which is crying out for an automated solution – but one which has to be shared between the banks, so we do not set up the data 15 different times,” says Damian Glendinning, president of the Association of Corporate Treasurers (ACT), Singapore.

The impact of KYC compliance continues to put pressure on the relationships between banks and corporate customers. Glendinning says that when banks are making investments to manage KYC regulations, they are sometimes doing so without consulting their customers.

“The banks need to communicate better with their clients,” he observes. “But the real issue here is the atmosphere of fear which has been created by all the mega fines which are being handed out.”

According to Glendinning, client relationship managers at banks know this is putting a strain on the relationships with customers, but the compliance managers have the upper hand: they are protecting the bank from billion-dollar fines. “So in the end, the customer relationship takes second place,” he adds.

Efforts are under way to streamline KYC compliance, with a number of collaborative solutions emerging – including Swift’s KYC Registry, which went live in December with more than 20 global and regional bank members.

“This repository collects information required for banks to comply and makes it available to the international financial community,” says Beck. “This could be an important service that reduces the cost and effort required to comply.”

Swift has also launched the Swift Profile, which uses global payment data to help banks identify potential areas of risk as well as providing a fact-based overview of a bank’s correspondent banking activities. Other KYC-related initiatives that have recently emerged include due diligence utility KYC Exchange and compliance platform Strevus.

However, ACT’s Glendinning argues that efforts to streamline KYC compliance are fragmented. “There is no clear statement of what is required, and no coordinated process for gathering it,” he says.

“The problem here is that someone needs to step back and ask how do we put in place a sensible system to make sure that we all meet a minimum standard for knowing who owns an account, so we can then put in place the most efficient system for gathering this information. Today, the approach is very fragmented: there is no clear statement of what is required, and no coordinated process for gathering it.”

On the Swift initiative, he says: “Needless to say, the banks who are working on an automated solution are doing so in splendid isolation – or via Swift, [which has] assigned this a low priority.”

Aside from embracing solutions such as Swift’s KYC Registry, banks say they are working to reduce the demands of KYC compliance on corporate clients. Taylor says the approach taken by BAML has been to simplify the process as far as possible.

“We have a global team which helps to bring together all of that complexity under one roof,” he says. “While the documentation is diverse and separate, we strive to make the collection, recording and presentation of all documentation as intuitive and painless as possible.”

None of this takes away from the complexity of the exercise or the regulators’ expectations, but Taylor says the goal is to minimize the disruption experienced by the client as a result of KYC compliance.

He adds that while the bank didn’t necessarily set out to streamline KYC compliance as a competitive advantage, the ability to simplify the exercise is likely to be of greater value to clients than the alternative – highlighting the benefits of a more consolidated bank relationship structure.

“Working with one bank that provides an intelligent and joined-up KYC process is intuitively going to be of greater value to the client than if they are doing business with more banks in more countries, signing more agreements and spending more time in supporting KYC asks,” he concludes.

Nevertheless, for some treasurers, the quality of collaboration efforts to date are found wanting. 

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