The rise of various utilities has brought to light a potential solution to solve KYC compliance headaches for treasurers. Ideally, they would present a space where businesses can enter all of the necessary data one time, and then their banking partners can tap into it as needed. Unfortunately, there are currently a number of utilities in operation and treasurers haven’t exactly been flocking to them for a variety of reasons.
A key issue is the absence of a central repository. In essence, replacing the need to give over sensitive data to multiple utilities rather than multiple banks is replacing a problem with a problem. So again, many corporates are waiting for one central repository to emerge so that they only need to turn over that information one time.
A banker in attendance at a recent meeting of AFP’s Treasury Advisory Group (TAG) explained that it would be ideal if “every one of our clients went onto one KYC utility.” However, banks can’t push for one third-party solution over another. “It would save us millions and millions of dollars and so much time and hassle,” he said. “But we’re not pushing any particular solution.”
Furthermore, some banks would rather not participate in a KYC utility because they prefer to have full control over the situation. As a result, some major financial institutions actually have people working very hard—manually—to make the process as painless as possible for corporates, noted Damian Glendinning, former treasurer of Lenovo. “I am afraid it is a general theme in banking these days—the fear of the regulators, and the cost of non-compliance, has risen to the point where banks are no longer taking rational economic decisions in many areas,” he said. “If anything is classified as a compliance risk, it just gets done, no matter what the cost.”
SWIFT announced in February that it will open its KYC Registry to its 2,000-plus corporate clients later this year. If SWIFT’s solution can emerge as a place where corporates could put all of their KYC data, and only have to do it once—that could be something enticing indeed. The registry clearly outshines its competition in one regard; while its competitors have several hundred banks or less on their platforms, SWIFT’s solution boasts nearly 5,200 banks.
But while SWIFT may have a lot of banks on its system, it’s questionable just how much use it currently gets. Another banker in attendance at the TAG meeting said that the KYC Registry is “rarely used, and it’s hardly one of the more trusted infrastructures.”
And there’s also a question of whether large corporates would truly need to use the KYC Registry, as publicly traded companies are largely exempted from many KYC requirements. “If you think about it, if a bank or a regulator needs that information, they can go to the 10-K,” said Bill Booth, principal/consultant with Treasectory and a former bank executive for PNC.
Corporates and banks have expressed their desire to see the corporate segment added to the KYC Registry for some time now. As a result, SWIFT has engaged a group of corporate end-users to inform its expansion of the Registry.
Spotify is one of the corporates that are part of that user group. “In our view, it should be possible to establish a shared and a secure registry in some format, where we can provide information as needed and our counterparts can consume it,” said Patrick Hallerstrom, senior director of treasury for Spotify AB.
Hallerstrom has investigated some of the other KYC products that have arrived on the market in recent years. While he views them as useful for information storage, he doesn’t see them having the potential to become that central repository that corporates have longed for. But he believes that SWIFT’s service does have the potential to be just that. “Where I think SWIFT is headed is creating a baseline for a registry and also streamlining the process end-to-end,” he said. “I think they can leverage their existing platform used by the banks when establishing it for corporates.”
Some TAG members see SWIFT’s KYC Registry as only being ideal for larger companies, due to the cost. They also speculate that the implementation process for SWIFT’s registry could be difficult, based on past experiences installing SWIFT software.
Furthermore, no system is perfect, as Karen Nash-Goetz, vice president and senior legal counsel for T. Rowe Price Associates and fellow TAG member pointed out. Even if corporates put all of the data on the platform that one of their banking partners wants, that doesn’t mean that information will be sufficient for another bank. “It’s not going to get away from Bank A deciding that it wants your passport and Bank B deciding that they don’t,” she said. “It’s not going to solve that. Those are still bank-by-bank decisions.”
KYC standardization can also be impeded by interpretation issues across banks as well as within the banks themselves, Mack Makode, vice president and treasurer for Under Armour, a TAG member and an AFP 2019 speaker noted. “It can become an interpretation issue when someone changes jobs at a bank,” he said. “The next person comes in, within the same bank, and has a different interpretation of the rules and asks for different information.”
Still, Makode believes that issue can hopefully be solved by corporates providing the majority of the required information on a platform—provided banks are using that platform. “Hopefully, when we get to 80 to 90 percent of the information, we can standardize and can supply different banks with information at the same time,” he said.
SWIFT’s product is not the only utility out there. Until April, Bloomberg had its own KYC service, called Entity Exchange. Although Bloomberg recently displayed its product to TAG and the response was largely positive, the company has since announced it would be exiting the KYC business.
Refinitiv (formerly Thomson Reuters’ financial and risk business), has its own solution, known as KYC as a Service. Refinitiv appears to understand the burden that corporate treasurers are faced with; in a 2017 survey, the company (then Thomson Reuters) found that 85 percent of corporates have not had a good KYC experience, and 12 percent have changed banks as a result. Furthermore, average onboarding times have increased and corporates are contacted and average of eight times by banks during that process.
According to Refinitiv, its solution currently has more than 400,000 complete and maintained KYC records on file, along with an entity database of 3 million corporations and 280,000 funds. It also boasts more than 500 individuals on hand managing KYC records.
Glendinning noted that when he was with Lenovo, he attempted to use Thomson Reuters’ product, but his team actually preferred to soldier on through manual process rather than implement a new one. “Whenever I challenged them on this, the answer was that to get the banks on board would involve a huge amount of time and effort—and there was still the risk that we might fail,” he said. “Given that account opening usually takes place against a background of time pressure from the business, the team just didn't see any upside to taking the risk of making a fraught process even worse, with no assurance of success.”
IHS Markit also offers a solution, called KYC Services (formerly Kyc.com). The company has recently partnered with encompass corporation to support its automated procurement of data from multiple sources, such as corporate registries, exchanges and regulator sites. By integrating this new technology, the company boasts improved data quality and a 30 percent reduction in the time taken to gather KYC data. This obviously reduces the need for manual processes on the corporate side.
Intelligent process automation (IPA) is the heart of the encompass’ offering. IPA is designed to reduce repetitive, manual processes through artificial intelligence (AI). According to encompass, it gathers and analyzes a multitude of complex information to “dynamically build a visual picture of a company or individual” in minutes.
KYC Services has more than 500 corporate end-users on its network, over 3,000 buy-side customers and more than 140,000 entities represented on its counterparty platform.
For more insights, download the Executive Guide, Is KYC Technology Resonating with Treasury?