Robust compliance rules are a must to curb money laundering, but overzealous regulation is making it hard for above-board companies to open or switch accounts.
“It is perhaps the starkest example of the unintended consequences of regulatory reform – certainly the most visible consequence to customers – that it is now so difficult to open the bank accounts which are the first step in international commerce for any growing business,” says David Craig, President of Financial & Risk at Thomson Reuters.
Writing on the Thomson Reuters blog, Craig points out that Know Your Customer (KYC) obligations placed on banks add extra costs and inconvenience, but provide no added value for clients, making them especially unpopular.
At present, banks must go through a lengthy process of checking new customers against global lists and ledgers. This means that it can take up to six months to onboard new clients, who must in turn hand over extensive paperwork in its original format, creating an increased risk of identity theft. Many financial institutions find that they are duplicating the efforts of their counterparts by running the same checks on clients, or even complicating the matter further by requesting the same information in a slightly different way.
Rather than individual banks having to run extensive checks on all new and existing clients, Craig advocates for financial institutions to pool their resources in order to streamline the process.
“The ultimate solution for financial firms, then, would be shared facilities in which all financial institutions would participate, sharing KYC information to produce a secure repository of client records,” he says.
“The client would have to present the information only once, to a single institution, and then all could access it. The data could be screened, updated for corporate actions and the service adapted to accommodate regulatory updates as they happen. And best of all, from the policymaker’s perspective, standardizing the data allows anti money laundering resources to be better targeted at catching increasingly skilful criminals.”
Fighting organised crime across international borders is a welcome development, but ensuring that banks can stay agile and open to business continues to be a major challenge for the industry.
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The majority of the region’s 28 member states report that the situation has worsened over the past year, reports business management consultant Verisk Maplecroft.