Independent Outlook on KYC Landscape Daniel Loffi Partner, Financial Crime Practice, PwC
http://www.pwc.com Independent Outlook on KYC Landscape 2
Evolving landscape of KYC Utilities
Evolving landscape of KYC Utilities Customer perspective Multiple and duplicated information requests and points of contact Long onboarding process Time consuming renewals Market drivers Need for industrywide collaboration FI perspective Increasing KYC costs and length of time to complete necessary checks Pursuit of an ever changing regulatory target Good enough vs. risks of KYC failure (e.g. reputational, operational, legal, concentration) Financial institutions face scrutiny by global regulators of anti-money laundering (AML) processes, systems, and controls. Sub-optimal customer experience Regulator perspective Difficult to oversee individual FI approaches and processes Increasingly onerous and complex international standards Recent top tier banks KYC failures Individual regulators could rely on KYC services provided by a utility 4
TARGET SEGMEN T OVERVIEW Evolving landscape of KYC Utilities Key players KYC/AML, FATCA data and documents, but no regulatory service will be provided. Initially focused on legal entity data and relationship between legal entities. Full-service offerings (onboarding, maintenance, analytics & reporting). Partnered with other service providers for sanctions, adverse media & PEP check services Banks/Broker Dealers (consumers of information). Investment Managers, Hedge Funds, and Corporates (providers of information) Partnered with Genpack to launch KYC Services (KYC.COM), an enhanced version of Markit s legacy Counterparty Manager product (MCPM). CTI acquisition brings Tax Compliance / FATCA into scope with credible service. Partnered with other service providers for sanctions, adverse media & PEP check services Broker-dealer, institutional and corporate banking businesses of banks and other financial institutions Partnered with several large banks to offer centralized KYC document repository for correspondent banks. Provides SWIFT activity reports showing banking activity with high risk countries Correspondent banks and their clients Launched Accelus ID Org web-based portal in Aug 2014. Leverages the strength of Accelus world-check and IntegraScreen from counterparty risk assessments, sanction checks and detailed entity and individual background checks. Acquired GoldTeir to support document collection and management Financial institutions and their clients including correspondent banks, asset managers, hedge funds and corporations PwC 5
Evolving landscape of KYC Utilities. Types of Utilities (1/2) 1 2 Industry Collaborations Utility Service Providers a utility developed by a specialist venture in collaboration with partner financial institutions. a utility or similar KYC as a service offered by a single provider 6
Evolving landscape of KYC Utilities. Types of Utilities (2/2) 3 Jurisdictional Utilities a utility which is designed to undertake core due diligence on behalf of all regulated entities within a single jurisdiction, potentially mandated 7
Evolving landscape of KYC Utilities KYC Utility development Customer s Now Customer s Medium term Long term KYC shared utility Customers Utility 1 Utility 2 KYC Utility Financial institutions Financial institutions Financial institutions Now Medium term Long term Significant process Limited scale of economies Scale of economies for all redundancy for market through utility data Length new client Utility FIs achieve benefits sharing acceptance periods of scale and average cost Rapid and uniform new KYC as one of many tasks model client acceptance KYC spending as cost Only utility FIs customers KYC as core competency for benefit from more rapid client Frequent regulatory a central utility on- boarding oversight Potential reduction KYC standards only common Inconsistent KYC standards in regulatory visits within the utilities and not Marginal KYC effectiveness Common KYC standards across the market Optimal KYC effectiveness Benefits for regulators limited Jurisdictional PwC to utility providers reputation enhanced 8
Evolving landscape of KYC Utilities Evolution of Utilities Identification and Verification Ongoing CDD Monitoring & Reporting False Positive reduction Implementation of advanced ID standards PwC 9
Evolving landscape of KYC Utilities Moving to a higher authentication standard Biometrics are a mechanism to authenticate a user is who they claim to be. The authentication defines the inherence (who you are) via bio-feature scores with the use of technical sensors. Main Applications of Biometrics: 1. Authentication 2. Access and attendance control 3. Travel control 4. Financial and other transactions requiring authorization 5. Remote voting (authorization) 6. Use of automatic working devices 7. Action control PwC 10
Evolving landscape of KYC Utilities What are biometrics? Analogue Digital Advancement One to one matching One to one matching RFID matching OCR recognition Biometrics One to one confidence One to many uniqueness PwC 11
Evolving landscape of KYC Utilities Biometrics are not all created equal Voice Behaviour Face Fingerprint Iris Multimodal DNA Numerous unique biological traits that go into producing signature sound Citi Call Centre Automatically verify a client s identity in under 15 seconds No PINs or lists of questions needed Create profiles of quotidian habits and run application silently to verify Telesign Analyse keystrokes, mouse movements and touch-based input on mobile devices Detect faces and quantify their features to match against database Bank of Montreal Verify transactions using selfie pay Translate illuminated images of fingerprints into digital verification Hong Kong Immigration 437 e-channels had been installed at all control points Unique patterns in the coloured circle around pupils to authenticate Singapore / Malaysia border Avoid the long queues for checking passports for 50,000 motorcyclists daily Add authentication factors to overcome the limitations of a single technology Australian government Include palm print and facial recognition in country s Identification System (NAFIS) for police access Most reliable form of identification by taking a physical sample FBI DNA samples to be processed using Rapid DNA systems located in police booking stations PwC 12
Evolving landscape of KYC Utilities Moving to an industry view Implementing high and inescapable ID standards that cannot be duplicated Moving it or its public key to a shared registry ID could be shared across FI s as could ongoing Due Diligence of each unique entity within that cohort PwC 13
Risks & Rewards
Risks & Rewards What are the benefits of adopting a KYC utility model? The potential cost efficiencies gained through centralisation of onboarding processes Improved customer service levels through a reduced number of touch points and reduced on-boarding times Earlier revenue recognition for banks through a reduction in the time required to make customer acceptance decisions Increased standardisation of KYC quality and compliance across the industry 15
Risks & Rewards Risks associated with KYC utilities Quality of the information provided by the Utility (quality does not comply with bank s policy) KYC utility s information contradicts other trusted sources (when considering signing up to multiple KYC utilities) Incomplete KYC Information (additional client outreach may be needed to satisfy any requirements over and above what s received from the Utility) Screening requirements (KYC utility screening procedures may be aligned with the bank. E.g. a bank might have a different view of what is seen as significant adverse news Operational Controls (lack of controls in place especially when the Utility relies on the information provided by other third parties) Banking Secrecy (the usage, safekeeping of client information and controls in place may not be in line with BS requirements) 16
Further considerations
Further Considerations What to consider before selecting a KYC utility? Regulatory How do a utility s standards align with existing KYC policies?? What elements of current requirements will need to remain inhouse? Operations What is the business case for using a utility? How do existing onboarding procedures need to be updated? What ongoing monitoring will be required to manage the performance of the utility? What happens with the utility offers a new service or product? Operations Regulatory Governance Governance Who are the key stakeholders in the KYC process? What is the optimum governance model for implementing and maintaining oversight of performance? Technology Selection How will the utility s systems integrate with existing technology? What technology can be rationalised to deliver cost savings? How robust are the utility s information security processes? Technology Legal What are the legal implications and data privacy concerns of using a utility? What contractual risks are there during implementation of a utility? Legal Selection What is the output from the utility? What other services does the utility offer? Are there strategic benefits to partnering with a particular utility? 18
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