Why Bank Supplier Onboarding for KYC Far Exceeds Fintech Efforts

Banks are requesting more KYC documents than ever before – clients can submit 5 to 100 docs during the onboarding process according to Thomson Reuters.

Why you might ask? Fear of fines, and more fines. The government is enforcing KYC and KYCC regulations that have been on the books and driving the cost of knowing who counterparties are and their counterparties up dramatically. Banks such as HSBC and BNP Paribas have been fined billions of dollars for money laundering.

According to Thomson Reuters, corporates are caught up in bank demands for KYC and KYCC documentation and banks lack a ‘common standard’, so corporate treasurers can be faced with frequent and inconsistent  KYC document requests from their banking group. This includes not only new customer screening, but transactional screening and third party screening, such as distribution partners, suppliers, royalty partners, etc.

Identity verification is a particularly challenging aspect of the KYC process, and the traditional way of verifying identities using passports, driving licences and other documentary forms of identification is a barrier and time consuming.

Regulators are also less concerned about going through the checklist than about taking your compliance resources and managing the risks you face. According to Chris Skinner, this is a place where Artificial Intelligence can help with a more risk-based evidentiary approach. Chris, commented that “When considering the automation opportunities offered through AI, many banks have identified onboarding and know your customer (K1YC) processes as the priority area.  New advancements in integrating OCR and NLP, now enable banks to deliver a more frictionless experience by allowing customers to easily upload documents through their mobile camera and extract both the needed data fields and ‘intent’ of documents to fully-automate the credit decisioning process."

So how do Fintech vendors ensure the suppliers they are financing have been KYC checked? Of course there are the use of databases to facilitate, including OFAC, PEP, Company ownership and others, and many will just use sanction lists from Government sources to integrate into their technology.  But some innovative Fintech vendors have gone a step further and during the contract signing process have done two-factor authentication and they also check to see if person is entitled to sign for the company. They can check with local authorities against an extract from a trade register that the person has right to sign for company.

Regardless, this is an area that could benefit from cross jurisdictional standards. Steve Beck, Head of Trade Finance at the Asian Development Bank said “The ADB is in contact with Financial Services Board on standardizing compliance requirements and will be pushing this through the G20 process in 2017. We're working with SWIFT to improve and broaden the KYC registry as well.”

Given how the cost of compliance impacted the Correspondent Banking market – see Next Crisis could be Catastrophic for Trade Finance, help cannot come too quickly.

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