Although Anti-Money Laundering regulations and standards continue to toughen up financial sector, last year slapped regulators in the face with the most striking money laundering scandals. And we’ve definitely seen some movements since, including introducing more stringent CDD tools and practices. We have identified some directions KYC industry might follow in 2019 and analysed how it will change the area of AML compliance.
Financial inclusion vs rigorous regulation
First and foremost, it should be noted that de-risking AML strategy pursued by regulators will be opposed by the need for social inclusion to financial sector. We are anticipating some relevant changes in legislation, including UBO regulations, sanctions control and post-Brexit change. At the same time, however, FATF recommendation suggest it is vital to seek to build a more inclusive regulated financial system, and enable a larger proportion of the population to access appropriate financial services. This requires financial institutions to look towards more lenient and flexible ways of on-boarding, choosing innovation over stubbornness of legal requirements.
Areas, which were attracting regulators’ attention for a long time, may finally see the change as well. This, in the first place, concerns initial coin offerings and crypto-assets, which European Securities and Markets Authority (ESMA) recently qualified as “financial instruments”. ESMA recognised the gaps in the current EU financial regulatory framework, which for now is not specifically geared towards coins, tokens and other crypto-assets. Earlier last year FATF said it will be providing “clarification to jurisdictions in managing the ML and TF risks of virtual assets in the next 12 months”, noting further that it will require “creating a sound AML/CFT regulatory environment in which companies are free to innovate”.
Increasing cost for security
Financial institutions which are striving to implement AML instruments and maintaining compliance in a developing regulatory environment will see cost implications in terms of time and resource. According to Thomson Reuters, the global figure was over US$40M and is ranging per area of business with banks spending considerably more (average US$70M) than investment managers (US$23M). This suggest the increase in cost by 15% since last year and the costs yet continue to rise.
With the costs becoming higher, FIs will be increasing the members of compliance-related staff and C-suite will spend more time on AML, KYC and compliance matters. If in 2017 FI’s biggest driver for AML compliance process were regulatory changes, money laundering cases suggest this will become the matter of competitive advantage, reputation and trust.
In the same time, in attempts to lower sights of increasing volume and cost of KYC, FIs are looking towards managed service models and investing in bilateral solutions. This will encourage Identity Verification providers to find ways to stay in line with new requirements and manage conflict of laws issues more efficiently, delivering better customer experience to give a fresh look to the KYC industry.
Call for alternatives and innovations
Understanding the constant need towards a smoother and faster ways for client on-boarding process, KYC providers will be looking for ways to connect verification process with already performed verification from a partner entity. Thomson Reuters reports that the global average number of times FIs contact their clients during the on-boarding process is 4, which is even higher for corporates where we can see global average of 8. Such numbers play a deciding role in customer experience with 12% reported to have changed banks as a result of KYC issues. Everyone expects innovation. The race for the smoothest on-boarding will continue, as the palm of victory will be earned by those who will introduce alternative ways for providing identity verification.
Currently, sourcing verification results from another FI tends to be rather complex. FATF allows banks to source the data only from the correspondent banks, under condition that this information was previously verified and the the bank acquires the proof immediately. When the relationship with the customer has been reported as of high risk by the correspondent bank, the bank must request additional information to conduct enhanced due diligence.
Since the launch in 2016, BASIS ID serves as an innovative KYC provider in over 100 jurisdictions. We allow our clients to fast track client on-boarding process, advice on compliance and the launch of efficient CDD process under reasonable costs and seamless customer experience. We are constantly following the market to get valuable insights and have a finger on the pulse.
Documents - Groupe d'Action Financière (GAFI)
Paris, France, 19 October 2018 - Virtual assets and related financial services have the potential to spur financial…
Thomson Reuters 2017 Global KYC Surveys Attest to Even Greater Compliance Pain Points
LONDON/NEW YORK -Increasingly protracted, complex and costly processes associated with Know Your Customer (KYC)…