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KYC and KYT: Treasurers and Banks Must Collaborate

  • By Michele Gentile
  • Published: 10/1/2015
kyccompWhen bank regulators create new compliance rules for financial institutions, their clients inevitably feel the impact as well. So it is with new know-your-customer (KYC) and know-your-transaction (KYT) regulations, which now require banks to undertake more thorough research into their counterparties, i.e., corporate treasury departments. An unintended consequence of tougher KYC and KYT regulations is that corporate treasurers must provide banks with detailed anti-corruption and due-diligence information on their businesses.

A new paradigm for counterparty assessment

Certainly, carrying out KYC procedures on every counterparty represents a significant shift. Previously, faith in a given counterparty could be established by proxy: If Bank A had a long-standing and trusting relationship with Bank B, and Bank B trusted Bank C, then, by extension, Bank A also trusted Bank C. Yet such an approach is no longer viable. And as banks look to support their clients’ moves into new territory, the number of banking partners they need to check is likely to increase significantly.

Consequently, banks and their corporate clients face a significant drain on time and resources. To minimize the effect of this vetting process on their core functions and on their clients, banks must combine their efforts and spread the workload among themselves. Treasurers should be proactive and remind banks of this opportunity.

One idea treasurers can give their banking counterparts is by supporting industry-wide KYC utilities and repositories—providing access to relevant information on potential partner banks. This approach minimizes the number of times a company needs to be assessed—a significant saving when you consider how many banks need access to the same information.

This process is already underway, with organizations such as SWIFT working towards developing a communal KYC repository for banks. Treasurers would be wise to ask their banking counterparts if they are involved in this effort.

Clearing the way

Another option is for banks to use the clearing services of a trusted banking partner, who has established the trustworthiness of the various counterparties that have to be reached. In this way, banks only incur exposure to their partner bank. This eliminates the need to deal directly with—and consequently the need to vet each and every bank they transact with on behalf of their clients.

Of course, for this approach to be effective, banks must be careful about their choice of clearing partners. In the interest of their corporate clients, they must look at how partner banks will deliver in four key areas: speed, cost, safety and reliability. The benefits of speed and reasonable pricing are clear—enabling firms to stay efficient and keep costs under control.

Markers of quality


Identifying which banks offer good value—especially in these critical areas—is not necessarily an easy matter, but there are certain features that can give a good indication. For instance, it is worth looking at a provider’s automated features, such as auto-repairs and automated acknowledgements of receipt, both of which are highly desirable.

Yet automated features per se do not guarantee full reliability or safety, since digital systems are themselves vulnerable to interference from various sources. Providers’ systems must therefore be resilient in a number of ways. First of all, they must be internally robust—maintaining the integrity of data as it is processed and shared. Then, of course, they must also be fortified against external risks, such as attacks from hackers, as well as the possibility of large-scale events wiping out entire systems. Data and infrastructure must be backed up and protected to guard against such eventualities.

A progressive solution

With a resilient clearing partner in place, however, banks are in a position to transfer a number of benefits to their corporate clients—including valuable support for entering new markets. The key to this is combining strong geographical coverage with innovative products.

Of course, this kind of collaboration can also help improve client services indirectly. One immediate consequence of using a partner’s clearing services is that it removes a number of administrative challenges—eliminating, for example, the need to carry out reconciliation for multiple accounts. Nor is it just routine encumbrances that banks can be spared. Any difficulties that may arise from the execution of a payment, such as the need for investigations, are also delegated. And as clearing banks take these problems away, they free their partners to focus on serving their own clients.

Michele Gentile is head of FI clearing sales for UniCredit.
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