KYC Audits may lead to Unbanked Countries, Unbanked Banks

Banks have very strong AML and KYC rules that need to be applied to other banks. This tends to be more complicated because of requirements from different regulators in different geographies.

Bankers tell me the cost of doing business with second, third, and fourth tier banks in certain countries has risen beyond the point of the value of business.  Unintended consequences of having banks in emerging markets that cannot get access to bank lines of credit means just like people who cannot get loans, these banks are unbanked. Regulators may wonder why a corporate can’t do business in Pakistan or Libera.

It hasn’t helped that Banks like BNPP have also been levied huge fines, $8.9 billion to be exact for enabling money to flow in places like Sudan and Iran to fund oil trade. See BNP Paribas fine a wake up call

There has to be a better answer than having Citibank do a KYC audit on all of HSBC branches globally. Think about it, if a bank does business with HSBC India via letters of credit, one KYC can be anywhere from 500 to 700 pages long. While a heyday of employment for legal advisors, regulators, and compliance people, the consequences on international trade are not good.

The Financial Action Task Force has existed for a long time and has 36 member countries that have signed up. According to the FATF’s web site, "The Financial Action Task Force (FATF) is an inter-governmental body established in 1989 by the Ministers of its Member jurisdictions. The objectives of the FATF are to set standards and promote effective implementation of legal, regulatory and operational measures for combating money laundering, terrorist financing and other related threats to the integrity of the international financial system."

Perhaps FATF can facilitate a global standard and working with SWIFT could play a key role as they have the money movement data. SWIFT recently launched a KYC registry program to reduce KYC-related effort and cost for correspondent banking.

Otherwise we may find many banks and countries are left out of the trade game, and that’s not good for anyone.

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