KYC for Supply Chain Finance is an Unmitigated Disaster

“Everyone has to take their shoes off at the airport.”   TSA Security


The title to this piece are strong words, and they are not mine. They are from a SCF tech provider that lives this stuff, where onboarding suppliers is mission critical, job #1.  And its not only a disaster now, its primed to get worse.

Companies who would like to use supply chain finance must feel like most of us when going through U.S. Customs.  There is no risk based approach currently deployed.

Determining what individual bank requirements are for onboarding suppliers to supply chain finance or payable finance programs is not about reasonable expectations. Interpreting KYC regulation to onboard suppliers is all about  a “principles-based” approach. Basically the governments in different jurisdictions set the principles to follow and leave banks to determine how. Oftentimes banks will go above and beyond what is required for KYC in an effort to make sure all of their bases are covered.

This leaves practices that can be viewed as excessive and cost heavy.  Regulators are also less concerned about going through a “compliance checklist” than about using resources to manage the risks a bank could face. If a bank is going to err in compliance, it will be on the side of having a high bar.

During the course of my recent research on this subject, I have seen banks with different documents required, different processes, different approval processes, and different archiving processes across countries and jurisdictions because the regulatory body that oversees different jurisdictions are different in their interpretations in the way KYC requirements are enforced.  Several bankers also believed that in some countries, compliance will become more onerous.  That is certainly the case with FinCen and the new beneficial ownership rules that recently went into effect.

While there are initiatives to standardize KYC and attempts (some could say feeble) to create utilities and data repositories (the latest being the U.S. Trade Finance Advisory Council’s recommendation on a data utility), it is our view that Data Repository projects will not relieve banks from producing the documents and look at them in detail.  Just because there is a central repository, doesn’t mean a bank is going to start business with anyone that fills out that central repository.

While some banks may have more rigid KYC standards than others (and several U.S. banks fall into that category), much of this involves requiring suppliers and individual persons to verify IDs and signatures.

When it comes to technology, we have yet to see risk-based approaches being applied to manage either thresholds of when certain actions are done or not done (eg. SCF programs for invoices under $10,000 do not require liens or waivers). Certainly new advancements in integrating technologies such as OCR and Natural Language Processing, combined with more options to upload documents provide innovation in helping to achieve more automation.

But by and large, if you are a company that wants to participate in a SCF program, particularly one from North America, be prepared to provide certified documents of your drivers license or passport if you are signatory to the receivables purchase agreement.  As one person said to me,

"There is no leniency just because a non client supplier has an existing bank account with say a HSBC, Citibank, RBS, or other high profile bank and passed their open account KYC checks.  Regardless, KYC still must be done to be onboarded to a Supply Chain Finance program."

For those interested in the research, you can contact me at



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Voices (2)

  1. Tat Yeen YAP:

    David, what leniencies do you think banks could or ought to make in their KYC due dilligence for supplier onboarding, and what would you say are minimum standards that the industry ought to require in performing due diligence in an SCF payables program and on participating suppliers?

    1. David Gustin:

      Dear Yap, Thats for the Regulators to decide. The banks would need to highlight the cost-benefit issues working through as a collective with their lobbying groups with proper support data on costs and limits on supplier acceptance. If I was a regulator, the first thing I would ask is what proof do you have that these KYC requirements are limiting companies from onboarding onto Pepsi, Unilever, etc. programs.

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