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KYC Remains a Major Concern for Treasurers

  • By Andrew Deichler
  • Published: 3/2/2016
comply1BETHESDA, MD. – Tuesday at the latest meeting of AFP’s Treasury Advisory Group (TAG), treasury professionals unsurprisingly named know-your-customer (KYC) regulations as one of their top concerns. However, there may be a light at the end of the tunnel—if treasurers are willing to make extra efforts to nurture their banks relationships.

Impact on treasury

Sassan Parandeh, CTP, global treasurer for ChildFund International, reiterating comments he’s made at previous TAG meetings, explained that KYC has been a major pain point for his organization. “A major impact we are experiencing is, we’ve had banks like Barclays come and say, ‘Give us your business,’ and then, overnight, they announced that they’re leaving Africa,” he said.

Following the recent terrorist attacks in Paris and San Bernardino, the Financial Action Task Force (FATF), a France-based intergovernmental organization that develops policies to combat money laundering and terrorist financing, made a number recommendations for KYC. “These recommendations are followed by all the national treasury departments and ministries; they put tougher and tougher KYC rules in place for NGOs under Recommendation 8—that’s probably why Barclay’s and other banks are de-risking in Africa,” Parandeh said. “This issue has become absurd. A bank cannot be enforcing law all over the world.”

Parandeh noted that while KYC has been a major problem for global development organizations (GDOs) like his for several years, it’s only just now starting to hit home with multinational corporations. “We’ve been really hurting and I never thought the corporates got affected by it,” he said. “But it’s creeping out and now everyone else is beginning to feel it. And that’s good, because we want everyone to talk and to do the advocacy.”

One attendee, a treasurer for a hotel and casino operator, is among the corporate treasurers feeling the effects of KYC. He noted that his company is moving more than 100 bank accounts from one longtime banking partner to another. “That goes back to KYC, as we have to move all of that cash,” he said.

He noted that his company is under even more scrutiny than most corporates because of its casinos. “Banks are doing more to limit their risk portfolios,” he said. “So you look at something like a casino; you’ll have someone from China coming in and depositing $2 million into your bank account. The bank says, ‘Hold on! Where did that deposit come from?’”

Variability in KYC

A key issue treasurers are having when it comes to KYC regulations is the lack of consistency across the board. But according to Catherine Warren, senior vice president, director, C&IB Compliance & Reputational Risk Management for PNC Corporate and Institutional Banking, that’s something they are just going to have to cope with. During a special roundtable discussion on KYC, she explained to the group that while there are clear KYC guidelines, they don’t prescribe how different banks are going to implement and execute on their respective programs. “The financial institution has to do a self-assessment for what their risk profile is, and their program should reflect that,” she said. “So you’re going to have variability with every bank you deal with.”

Warren added that banks risk profiles can change constantly, which means that corporate clients can see variability with the same banking partner over time. “The risk profile of the financial institution may shift if a bank acquires another bank or if it goes from a domestic bank to an international one,” she said.

Suzanne Williams, Assistant Director, Federal Reserve Board, noted that many KYC requirements haven’t actually changed for a number of years, however, the financial industry as a whole, has. “Bank of America, 10 or 20 years ago, was maybe a dozen banks or more,” she said. “So that understanding of the customer and the risk now has to cover a much bigger area, whether it’s products, services, geographies, etc., and that really necessitates the sophisticated systems.”

Furthermore, the traditional model of customers walking into a bank branch and completing a transaction is all but gone. “So when you have a situation where the direct customer interface is at some other nonbank financial institution or is completely not a face-to-face interaction, that drives changes in the impact on these requirements,” Williams said.

A different approach

But not all treasury departments are struggling with KYC. One treasurer explained that while her company has a multitude of bank accounts, they have evolved their policies, procedures and record-keeping systems to efficiently address expected KYC requests. “I think we’ve taken a very educated approach with how we work with our banks,” she said. “We’re very familiar with the rules and regulations. We closely partner with our banks, and if they’re asking for something without basis or reason, then we’ll push them to back down where appropriate.”  

This treasurer has spent a lot of time figuring out how her department can work within its banks’ KYC framework and investing in itself to improve that process. “We’re looking at how we manage our legal entity systems so that we have all the right information collected and readily accessible,” she said. “We also look at how we can work with our business units so they know what the appropriate timelines are, and they’re not caught trying to transact in two weeks when it takes six weeks to get the associated bank account open.”

However, Parandeh pointed out that things are more difficult for organizations that operate in high-risk countries. “We have good internal processes in place as well and have to do our own KYC,” he said. “But since we work in high-risk areas, we have more intense scrutiny on us.”

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