Every month, if not week, we see financial institutions (FIs) in the headlines of the news articles regarding another failure to comply with anti-money laundering (AML) or know your customer (KYC) rules. This leads to multi-million fines, shares value’s slump and executives’ resignations or even criminal charges. But there are ways to transform regulatory burdens into business opportunities, e.g. by creating a centralized KYC Utility. In this article you will find the benefits FIs do expect from a KYC Utility and what challenges they face during the implementation.
The current KYC process is all but smart and time efficient. Customers are forced to provide their personal data (e.g. passports, IDs, proofs of residence) every time they want to open an account with a new bank or take out a loan. Weeks or even months can go by, waiting for the customer’s identity to be verified. This is frustrating for customers and banks. Wouldn’t it be much faster and smarter if there was a central platform where banks could get all the information, they and every other bank need about the customer? This is where the KYC Utility comes into play.
The KYC Utility is a joint venture established by FIs, which centralizes collection, verification, storage, and sharing of clients’ data and documents to comply with each FI’s KYC procedures.
What are the main advantages banks and customers expect of standardization?
- Increasing KYC information quality and regulatory compliance
Standardization allows to establish a unified database through which customers get their credentials verified in a robust and uniform manner. Received customer data can be shared between the FIs helping to set up a single customer KYC profile, by consolidating all available data. Next to that, mutualized customer profile prevents purposeful exploit of the non-cooperation situation regarding customer information between FIs for illegal activities.
In addition, standardization increases quality of regulatory compliance. FIs have varying regulatory requirements followed by diversified elements such as existing platforms, different group-wide policies and risk appetite. Creation of harmonized policy for customer identification strengthens risk management, as the highest KYC standards apply for all participating FIs.
- Reduction of costs
Sharing one single KYC record of a common customer on a joint platform with other participating FIs allows to perform KYC collection to one time. A collaborative KYC exchange with harmonized KYC standards prevents duplication of work and ensures that other FIs do not have to perform the same process again. This translates into cost reduction of data collection up to 50%, as per Capgemini calculations.
- Increasing customer experience
From a customer’s perspective it can be very frustrating to complete the same process and paperwork multiple times. Especially for business clients which have many touchpoints with different FIs. A KYC Utility could save them a lot of time, money, and nerves and is a great chance to gain competitive advantage for the bank.
What are the key challenges FIs could face while creating a KYC Utility?
Like in all major implementing programs one of the key challenges are the costs. Setting up a KYC Utility is primarily driven by fixed costs to set up the technology platform. In addition, there are costs caused by the integration of FIs as they have various levels in terms of client data systems and KYC workflow systems. FIs that spent more time developing integrated client data and workflow systems could have more costs to implement necessary changes to receive data from the KYC Utility. It is necessary to ensure that the costs of building a KYC Utility are lower than the old KYC strategies.
A centralized KYC Utility contains a big amount of personal data what makes it more vulnerable to abuse. There is for example the possibility of entering inaccurate information into the system, in the worst case intentionally to harm individuals or businesses. This increases the need for cybersecurity and prevention.
FIs must observe local and regional regulations such as the EU General Data Protection Regulation (GDPR). This means that all processes from collecting data to managing it must be transparent. It must be clear which personal data is needed for what and this while enabling the customers to delete their data if they want to. Therefore, the FIs must keep clear records of their collected data and get the customer’s permission to share their data.
In 2019 six Scandinavian major banks have established a joint venture company to develop a platform with standardized processes for handling KYC data. The focus is mainly on large and midsize Nordic corporate customers of the six banks.
KYC Utility offers important advantages to simplify processes, reduce costs and improve customer experience. However, there are several challenges involved in building a centralized platform that require optimal preparation.
If you are interested on what solutions we as Capgemini have to offer to realize your KYC Utility goals, please do not hesitate to contact us.