Two banking industry reports have found that Know-Your-Customer (KYC) regulations will continue to be high priority, despite being a source of rising costs and deteriorating client experience.
According to a joint survey conducted by Hong Kong’s Private Wealth Management Association (PWMA) and KPMG, the average client onboarding time has increased from 30 to 40 days in the past two years.
The survey, which examined 37 wealth managers, also found that the proportion of institutions completing such onboarding within 60 days has decreased from 93% to 76%.
Meanwhile, a study by compliance software provider Accuity covering 100 banks, corporates and regulators found that 35% of the industry is still struggling to adapt to regulatory requirements.
Here are some key statistics you should know.
1. KYC spending
About 95% of Hong Kong-based banks participating in the PWMA survey said that KYC and anti-money laundering (AML) checks were a leading area for resource and budget spend in coming years.
This portends a continuation of recent trends, where private banks have bulked up their compliance spending by hiring specialists, training staff and onboarding new technologies and tools.
Concurrently, the survey participants wanted a separate set of private wealth management-specific guidance notes from the Hong Kong regulator for greater clarity on how to comply with regulations.
2. KYC utility
The concept of a shared utility for KYC, where client information can be pooled and shared between banks through technologies like blockchain, is also picking up speed.
About 85% of the PWMA survey respondents agreed that a KYC utility would be a positive development, contributing to quicker client onboarding and better client experience.
3. Central source
The Accuity report, meanwhile, found that 31% of the participating financial institutions had started using a centralised source of information to decide risk and collect KYC information on counterparty relationships.
Moreover, banks are also using more specialist third-party resources to identify high risk entities than in 2014, with fewer relying on internal information to make decisions.
4. Ultimate beneficial ownership
Collecting accurate ownership and ultimate beneficial ownership (UBO) information was considered ‘very challenging’ by nearly half (42%) of the respondents in the Accuity survey.
In Asia, Singapore and Hong Kong are leading the way in implementing registers for UBO information to be able to better track a customer’s risk profile and monitor his/her transactions.
Moving westwards, starting 11 May, US banks have had to make substantial efforts in ascertaining and verifying the identities of UBOs, in line with FinCEN’s new regulation.
Looking ahead, in the European Union, the AMLD5 directive will require all member states to implement a publicly available UBO register by 2019.
Moreover, financial institutions operating in the EU have to have all KYC information, including beneficial ownership information, readily available to authorities.
5. $10 billion
The US Treasury Department’s Office of Foreign Assets Control calculated that AML penalties paid by banks peaked at $10 billion in 2014.
It’s no wonder then that the highest priority for banks going forward is to avoid regulatory fines and enforcements as well as protect their organisation’s reputation and customer relationships.
As a result, only one-third of respondents in the Accuity report identified cutting the costs, time and effort of KYC due diligence as a high priority.