The update of the Wolfsberg questionnaire on due diligence has been expanded to take into account changes in expectations in correspondent banking.
The Wolfsberg group, comprising 13 of the world’s biggest banks – including Bank of America, Credit Suisse and Société Générale – announced it was to release an updated versions of its due-diligence questionnaire (DDQ) at the end of 2017.
As well as including additional questions, the group wanted to remove any ambiguity about what it is asking for and which institutions need to supply it.
However, after further interaction with its customers, the group has now decided to withhold the release of the DDQ until later this month, when it has completed additional materials, such as a publication and completion guidance. It is also adding a glossary to ensure all parties have the same understanding and remove incorrect interpretations.
There was a consensus across the industry that there had been notable changes in the decade since the questionnaire was first drawn up.
Guy Harrison, managing director and head of KYC (know your customer) services at IHS Markit, says the group was involved with the Committee on Payments and Markets Infrastructures, and Financial Stability Board working group on the draft stages of the questionnaire.
Harrison says the changes will mean some institutions having to look into new ways of working.
“The new version will require more work from the providers and the respondents,” he says. “The added questions will raise standards, but ultimately mean more work. There are ways to help by centralizing and streamlining.
“We have to now think of how to carry out due diligence in an innovative way that mitigates the additional effort of fulfilling improved standards.”
In addition to the Wolfsberg group’s changes, the joint committee of the European Supervisory Authorities (ESAs) has provided its own update on the use of technology in complying with due-diligence requirements.
Comprising the European Banking Authority, the European Insurance and Occupational Pensions Authority and the European Securities and Markets Authority, the ESAs published an opinion in January advocating the use of innovative methods in due diligence, although while still applying caution.
This validation of the use of technology will bring in faster change.
Harrison says: “The report has a twofold response. It is promoting both innovation in tech and KYC, and calling to enhance the experience at the core of what we are doing. There is recognition of the need to build the focus on the right standards for due diligence.”
The move towards tech provides a chance to expand the existing roles of the KYC utilities and registries.
|Bart Claeys, Swift|
Bart Claeys, head of KYC compliance services at Swift, says: “Using the registry does not eliminate the responsibility of carrying out due diligence, but it helps with efficiency and streamlining the process.”
Having all the information pooled into one location means compliance officers are not overburdened, and can even leverage off the expertise of other institutions.
IHS Markit’s Harrison says: “Banks checking KYC only have one set of eyes. The benefit of centralizing KYC data is having the compliance officers of all the other banks as well making the same checks.”
Claeys at Swift adds: “KYC needs to allow banks to identify the client and get a better understanding of who they are, where they are operating, and which products and services they provide.
“In starting a new relationship with a correspondent, it is important to receive correct information, in a timely matter, in order to make informed decisions.”
Even with new technology in place, there still needs to be regular updates conducted.
Claeys says: “It’s imperative that firms take a strict approach to due diligence. Swift’s KYC Registry and our position in the industry means we are perfectly placed for collaboration on any developments.”
Adds Harrison: “Compliance is not a one-off process. There is a constant need to update the data.”
These changes initiated by the Wolfsberg group and the ESAs allow for ever more innovative ideas to thrive.
“Technology is the holy grail of KYC,” says Harrison. “We are looking for ways to continually improve the service, including adding open APIs to integrate publicly held data. Also, AI can be implemented for more intelligent processing of the data.”
IHS Markit has recently announced it is to collaborate with Cambridge Blockchain to look into ways to take the information on its database onto the distributed ledger (DL).
“For our users, we can offer reassurances in terms of how to best apply new technology such as DL,” says Harrison. “We are pleased to partner with a reputable company like Cambridge Blockchain. We can gain an understanding of how to implement the technology, and our customers have a company like IHS Markit to ensure the safety of the process.”
He explains the evolution of the collection and accessibility of KYC databases has been a topic of discussion for some time, adding: “Applying blockchain to KYC has been on clients’ minds and it’s something they have regularly contacted us about.”
Harrison adds that the concerns that might be felt about moving into new tech offerings, such as blockchain, will hopefully be mitigated by the presence of a provider that is known and trusted.
“IHS Markit can provide the leadership role,” he says. “Our service can bring the industry together to implement new standards and new technology. We are situated between the buy and sell side, so we can represent both sides in the solution.”