KYC Utilities and the Future of Regulatory Onboarding


Written by: Joe DunphyJoe Dunphy 2

The topic of KYC utilities was a strong focal point at recent roundtables that we held in New York and London. It appears that amid a tsunami of new and enhanced regulatory obligations, 2014 was the year that witnessed a tidal wave of press releases announcing the launch of yet another KYC utility. Between KYC utilities and client reference data utilities, the last count was 15 such utilities competing head-to-head, purporting to bring many accumulative benefits to the client onboarding and KYC functions in investment banks and capital market firms.

Industry Compliance Standard

Recent reports suggest that financial institutions are struggling to comply and keep up with existing AML and KYC regulations. The last two years has seen a record number of punitive fines being levied against some of the world’s leading banks for non-compliance with AML and KYC regulations. A central store of KYC data and documentation should help to provide an industry standard of compliance and stave off unwelcome scrutiny of the regulators.

Capture Data Once, Re-Use Many Times

Financial institutions potentially transact with and perform KYC processes (including requesting and processing – oftentimes repeatedly – the same set of data and documentation to support KYC, client onboarding and ongoing due diligence review processes) on the same entities around the world. From an operational point of view, we estimate that up to 80% of financial institutions’ AML and KYC programs share commonalities (e.g. similar questionnaires, documentation, screening and risk-scoring processes, and continuous monitoring programs etc.). The utilities offer significant opportunities to enhance overall client service by making it possible for clients to upload data and documentation to a utility ONCE – regardless of how many accounts they hold with various financial institutions.

Time and Money

The more complex the client, the more elaborate the KYC and AML checking required, which means the longer it may take to onboard the client. Every day that a client is not onboarded represents an opportunity cost in the form of missed revenue. By introducing greater operational efficiencies into KYC, regulatory compliance and onboarding processes, KYC utilities can reduce the overall cost of compliance and onboarding and simultaneously improve time to revenue for participating financial institutions.

So a shared KYC utility makes perfect sense.

But here’s the caveat!

A shared KYC utility doesn’t necessarily mean the total eradication of KYC resources or compliance obligations within a financial institution. While it can certainly accelerate the gathering of data and documentation to support KYC and regulatory compliance and onboarding requirements, it’s important to note that ultimate liability lies with the financial institution to ensure that all AML, KYC and regulatory due diligence and compliance is completely satisfied for each legal entity being onboarded and that they remain in compliance throughout the client’s lifetime with the bank.

KYC utilities merely expedite the mundane and time-consuming elements of collecting the supporting KYC and AML data and documents. The financial institution still has the responsibility to take that data and documentation, analyze it and assess it appropriately in line with regulatory obligations and best practice. For that reason, financial institutions will be still required to maintain in-house resources in terms of personnel, case management and compliance tools to manage compliance obligations and prove robustness and regulatory coverage to the relevant regulator.

Choose the Right Utility

The key to successfully using and benefitting from a shared KYC utility comes down to one thing – client overlap. The ideal solution will work on economies of scale i.e. it will store, consolidate, screen and share non-competitive client or entity data and documentation with participating banks that are doing business with the same entity. Therefore, the more participating banks that share data on the same entities, the better return they will get and the lower the cost of the solution. It is for this reason that we believe that the industry needs to shake-down the 15 current contenders to three or four viable ones. Too many vendors and the concept of a KYC or entity data utility becomes redundant and useless; too few and it becomes a monopoly.

By aligning in-house centralized data repositories and regulatory onboarding systems to the chosen KYC utility, financial institutions can bring about a sea change of benefits to their regulatory client lifecycle management processes by:

  • Removing the tedious, time-consuming efforts involved in the collection of data and documentation to support AML and KYC compliance, as well as compliance with individual regulatory obligations such as FATCA, Dodd-Frank, EMIR, MiFID II and other APAC and Canadian OTC Derivatives;
  • Enhancing the client experience by requiring clients to upload just once all the data and documentation necessary for compliance across several accounts and financial institutions; and
  • Accelerating time to revenue by getting clients trade-ready and operational as quickly and efficiently as possible.



Comments are closed.