Today, the trend is for counterparty research and data collation to be carried out by operational or offshore centres, with the final review processes remaining with specialist departments. Throughout the industry, the aim is now to achieve process efficiency, ensure a standardised approach and reduce costs.
Simultaneously, counterparty due diligence processes have become more robust. The frequency and depth of investigation undertaken has grown steadily, to the point where financial institutions (FIs) struggle to know when they have done enough. The expectation is that banks have an effective means of identifying relevant events that would trigger additional or enhanced due diligence.
Moreover, the cycle on which counterparties are reviewed has increased, and factors such as the risk profile of the jurisdiction of a branch or subsidiary now come into play. For example, it is no longer sufficient for KYC professionals to assume that the institution can be treated like its head office. All the while these teams need to constantly monitor for changes in officers, ownership and, of course, elusive ultimate beneficial ownership (UBO) information.
Meanwhile, banks also face pressure from industry regulations such as the US Foreign Account Tax Compliance Act (FATCA), which add additional onboarding steps and requirements for institutions to retrospectively assess the status of counterparties. Other industry initiatives, such as the introduction of legal entity identifiers (LEIs), assist in providing powerful insight into an institution’s customer base by enriching existing data to create a single view of the customer and surfacing relationships.
A Growing Challenge
New global regulations, the drive for increased efficiency and the demand for greater due diligence scrutiny combined create a challenging KYC landscape. In fact, many FIs have introduced more stringent internal standards and closed counterparty relationships deemed to be too risky or no longer commercially viable. Ironically, because of the other factors at play, the volume of due diligence work has not reduced.
Supporting the anti-money laundering (AML) due diligence that banks undertake as part of their onboarding and review processes when making a risk assessment of a current or potential counterparty is just as crucial today as it was 10 years ago. With a single, trusted source, FIs can reduce the burden of counterparty data collection and focus on more critical due diligence issues.
Today, banks still face a number of challenges in obtaining data from counterparties. In Asia, the collection of data directly from the counterparty is not always a reliable approach. Responses are often delayed and it can be difficult to locate the right contact and when eventually found, he or she may not speak the same language. Even when there is the opportunity to gather data from public sources or the counterparty’s website, this information is not always in a usable format. Furthermore, repeated requests add delays and costs – not to mention risk.
While impossible to predict all of the challenges that may arise in the next 10 years and beyond, KYC professionals can be sure that banks will continue to face regulatory pressures and that reliance on the highest quality data and documents that are source-verified and shared in a standardised format are even more essential.
We have been witness to a series of significant security events recently around payment execution, from Leoni in Germany through to ABB in South Korea and SWIFT in Bangladesh to name a few of the major headlines.
Europe’s opening banking regulation is finally here. After months of preparation across the continent, the Revised Payment Services Directive comes into effect on January 13.
The revised Payment Services Directive regulation, regarded as one of the most disruptive in Europe’s financial services sector, will begin to make an impact on January 13, 2018.
The cost of compliance efforts for banks has increased exponentially in recent years. This is especially true for those banks that are active in the global trade finance domain, where the overwhelming expectation is for compliance requirements to become even more complex, strict and challenging over time.