SWIFT’s Claeys: Decades-old KYC processes need change

By Alex Hamilton | 8 May 2019

Decades-old know your customer (KYC) processes in corporate banking are unsustainable, says Bart Claeys, head of KYC at SWIFT, and nascent technology like distributed ledger technology (DLT) has a way to go to prove its effectiveness in assisting market requirements.

“I think today there is a realization that the current way that KYC is being formed is not sustainable anymore,” says Claeys. “There is now a real opportunity for change, and a lot of banks and corporates are actually now taking that opportunity, though it's taken a number of years to drive traction, because we’re talking about a legacy process that has been in place for four decades.”

An industry report from Greenwich Associates this month found that European banks were lagging behind their US rivals when it comes to the deployment of digital solutions to KYC issues. “It is time-consuming and boring work, and we do not see it giving us any added value. Instead of pushing the workload over onto us, much of the work should and could be done by the banks themselves,” a market participant told the report’s authors.

Claeys agrees there can be a lot of interconnecting systems slowing down the KYC process. “If you are a multinational corporate or multibank corporation, you have a large footprint, so you have a lot of businesses and entities set up worldwide,” he says. “This leads to them holding various accounts at different financial institutions.

“Of course, the regulatory expectation is that these banks will do KYC on all the corporates, and it’s not sufficient that they do it on the corporate group but on all the individual entities within it that want to open and hold an account. You can imagine that it is a very heavy process with a lot of repeated outreach from the bank to the corporates.

“The challenge exists on both sides. The bank has to do the KYC and then reach out to get in touch with the corporates and make sure they do a proper risk assessment. The challenge for the corporate is that they have to do this process over and over again and there is a lot of repetition and inefficiencies.”

Centralization vs decentralization

According to a 2018 report from KPMG, the implementation of a workable blockchain platform could create KYC cost savings of between 25% and 50%. However, a study performed by BNY Mellon and the International Chamber of Commerce (ICC) found that 43% of trade professionals think blockchain or DLT platforms are the least effective approach to solving KYC problems, largely due to the technology’s infancy.

“There's been a lot of initiatives and proof of concepts around distributed ledgers and KYC has indeed come up as a very legitimate candidate from the angle of being able to provide secure information exchange,” says Claeys. “But what also comes into play with decentralized solutions is that a central authority or central body is still needed in the context of the standardization exercise. And in that sense, the fact that we can just open up an existing platform, and basically extend it to a new set of customers is definitely still very much relevant.”

SWIFT operates a centralised KYC registry, which it opened to 2,000 corporate groups earlier this year. The network claims that 5,100 financial institutions use the registry to upload, maintain and share KYC information.

“Across the industry, we are acknowledged as being a utility that can be very successful, because of our nature and our governance and the way that the services that we build, we do that with purpose to help the financial industry. There have been other, more commercial KYC utilities on the market, but a lot of them have also been struggling to gain traction.” Bloomberg revealed in April that it would be sunsetting its KYC business line as part of a streamlining exercise. Sources told iTreasurer that both Entity Exchange and Entity Intelligence would be shut down by Q2 2019.

Claeys believes that while there is currently no global or high-level regional standards body mandating the way in which corporate KYC is conducted, it would be very difficult to set one up. “There are all of these regulatory requirements, which are varying from one jurisdiction to another, which of course makes it very difficult, because every bank will need to make sure that they comply with their own jurisdictions in the country they are based, as well as those in the nations they operate in.

“It’s very unlikely that we will ever have a global standard that applies across al jurisdictions, but we should be going in a direction where there is much more transparency around the types of information, formats, and the way we’re collecting the data as an industry.”


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