Bethesda, Md. – During the latest meeting of AFP’s Treasury Advisory Group (TAG), treasury professionals voiced their dissatisfaction with banks’ know-you-customer (KYC) rule process. Generally, no one is happy with the current system, but practitioners also aren’t fully sold on any of the KYC utilities currently in play.
The lack of centralization, common standards, transparency, security and automation around KYC has created many problems for treasurers and bankers alike. Those issues include higher costs, a lack of audit trails, a poor client experience, inefficient workflows, cybersecurity risks, and a lack of transparency.
The rise of various KYC utilities has brought to light a potential solution to solve the problem for corporates. 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.
The biggest obstacle for many corporate treasurers is the banks, which tend to go above and beyond what regulators demand of them for KYC. “Right now I have to get the same info to 10 different banks,” said one TAG member. “I want a repository where I can upload the information once.”
And each bank has a different approach. Some banks have global teams that handle KYC compliance, whereas others have local ones that work on it.
A banker in attendance 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. “We can’t push KYC.com over Bloomberg or SWIFT,” he said. “It would save us millions and millions of dollars and so much time and hassle. But we’re not pushing any particular solution.”
A TAG treasurer also expressed concern with this issue, noting that he wasn’t sure if having all that sensitive personal data in a third party’s hands is a good idea.
Another issue is the sheer number of banks that are on the platform. Bloomberg’s solutions have 200 banks, and KYC.com from IHS Markit has a few hundred on its platform. SWIFT’s KYC Registry, which is opening its doors to corporates in the fall, boasts more than 5,200 banks.
But cost is also an issue. Corporates have to pay for SWIFT’s solution, whereas Bloomberg’s is free. Thus, some TAG members see SWIFT’s KYC Registry as only being ideal for larger companies, while Bloomberg’s solution would be a better fir for smaller organizations. They also said Bloomberg’s is easy to implement, while they believe the implementation process for SWIFT’s registry to be “painful”, based on past experiences installing SWIFT software.
Furthermore, while SWIFT’s may have a lot of banks on its system, it’s questionable just how much use it currently gets. One banker in attendance said that the KYC registry is “rarely used, and it’s hardly one of the more trusted infrastructures.”
Lastly, the group also discussed potentially using a blockchain solution for a KYC directory. TAG members agree that it would work for KYC, but it might not be cost-effective.
FEAR OF THE UNKNOWN
Finally, the biggest hurdle may simply be that the current system—which treasurers hate—is nevertheless preferable to the unknown. “People don’t like the current system,” said one TAG member. “But for a long time, corporates and banks have learned how to exchange KYC. Now, you’re trying to break that process to make it better, so that’s why utilities have struggled.”
If practitioners do decide to bite the bullet, it’s possible that one of these utilities could do away with some or perhaps all of their KYC woes. But that will depend on certain factors—mainly cost and ubiquity. The latter is probably the most important, because as we’ve said before, having to enter KYC data into multiple repositories is not really any different than having to turn it over to multiple banks. Until someone solves that problem, KYC will continue to provide headaches for treasurers.
KYC is sure to be a key topic of discussion in the Treasury Management track at AFP 2019. Register for the conference here.