Know Your Customer obligations on corporate treasuries and their banking partners are rising. Can financial utilities alleviate the risk and cost?   

Author: Neil Ainger

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A stricter Know Your Customer (KYC) regulatory regime has been evident in recent years. Large fines, reputational damage, counterparty risk and lost business efficiency await those that don’t align their operations with stronger financial crime rules on money laundering and sanctions screening, or new tax-reporting duties such as the US’s supranational Foreign Account Tax Compliance Act.

Thomas, Markit: KYC services help companies avoid duplication of work.

“KYC is a nightmare for our operating units currently and is quite onerous,” says Royston Da Costa, group assistant treasurer at Wolseley Group Services. He oversees treasury systems at the UK-based plumbing, heating and engineering firm.

In extreme cases, strengthened rules may even mean banks ‘de-risk’ by exiting certain countries, such as Syria or Russia, from fear of fines, making operations and cross-border payments harder. 

“I haven’t seen banking partners withdraw from ‘at risk’ countries yet,” says Michael Connolly, an experienced corporate treasurer and former chair of the Investment Committee for Jewelers of America. “But the scrutiny on transactions and movements of funds and documentation burden is certainly increasing.”

A move toward more transparency after the 2008 crash is a major factor why treasuries—and the banks they use—must report more KYC information than ever before. The US Dodd Frank rules and European Market Infrastructure Regulation also mandate that derivative trades be stored to make it easier to unwind any future Lehman Brothers‒style collapse. This and other transparency, capital adequacy and anti-terrorist financing and corruption mandates are all adding to the data load on financial institutions.  The surge of customer due diligence and trading data requests is clogging up on-boarding processes and hampering efficiency, while adding to costs at a time when most financial institutions are seeking to cut them.

No wonder that these entities, including treasuries, are turning toward utilities such as the SWIFT KYC Registry, Thomson Reuters’ Accelus Org ID managed service, the Depository Trust & Clearing Corporation’s Clarient Entity Hub and Markit’s offering, among others. By sharing the compliance burden, instead of relying on expensive proprietary systems in noncompetitive areas, financiers gain economies of scale.

There is no need to reenter data for multiple requests if counterparties are on the same platform. “Corporates can register themselves on our platform and upload documents that are normally requested from their banks,” says Darren Thomas, head of counterparty management at Markit.

Most such utilities are aimed at specific audiences in the securities hedging or corporate arena, or correspondent banks in SWIFT’s case, but there is crossover and competition. Some offer direct access to corporate treasuries; some don’t. All operate on the basis that users can upload their own details for others to access as required and benefit from the same collaboration in return.

Stauffer, Clarient: Sharing data through utilities spreads the compliance burden.

The Clarient utility, for instance, used by 120 firms worldwide, enables corporates to establish handshakes with their banks, broker dealers and asset managers to exchange content and provide the necessary KYC and new account documentation. “Institutions are looking to reduce the time and complexity required to begin banking or trading, while ensuring all regulatory and compliance requirements are met,” explains CEO Matthew Stauffer.

Connolly believes that banks, as the conduits of international finance, “will be more the target of regulators,” and consequently looks to them to take a lead—if not exclusive—compliance role. “I expect banks to continue to be diligent in their review of documentation,” he says, and adds that KYC utilities will only be extremely useful once the banks and regulators get comfortable with the standardization of their information.

“We use Thomson Reuters’ KYC platform at Groupe SEB,” explains Istanbul-based chief financial officer Mustafa Kiliç. “It is a help, as is the fact that banks are more willing to share data with us than they were previously. However, not all companies use the same platform, of course, and there is a limited amount of cleansed, verified information. There are too many platforms, in my opinion. Ideally, you just want one overarching utility for efficiency purposes.”

Thomson Reuters is targeting corporates and, indeed, won a Process Innovation award in Global Finance’s Innovation Leaders in Corporate Finance 2016 event this year for its KYC partnership with Vodafone. According to the citation, the project “provided a secure intermediary for the distribution of KYC documents.” It’s an ideal description of what a utility should do.


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