Strategic Treasury

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Why Does KYC Matter to Corporate Treasurers? Banks’ ever-increasing KYC (Know Your Customer) requirements are hindering the operational efficiency of corporate treasury departments. We explore some innovative solutions.

Why Does KYC Matter to Corporate Treasurers?

 

by Steve Pulley, Managing Director, Client On-boarding and KYC Solutions, Thomson Reuters

Banks’ ever-increasing KYC (Know Your Customer) requirements are hindering the operational efficiency of corporate treasury departments. Steve Pulley, Managing Director of Thomson Reuters Org ID KYC managed service, explores some innovative solutions to the problem.

Customer-centric banking?  Not from this perspective.

In the past, only basic KYC checks were performed on new banking clients.  Requests were fairly predictable in nature and adding services to an existing account generally didn’t involve additional KYC requests. The globalisation of banking, the events of 9/11 and the financial crisis of 2008, however, have changed all this.

These events have led to increased regulations and rigorous enforcement by regulators.  Banks are understandably tightening up on KYC due diligence in the face of hefty fines for non-compliance and, most importantly, the threat of reputational damage, even if it’s at the expense of the client relationship.  KYC checks performed on clients are now extensive, with additional checks for additional services.  The list of document requests is increasing exponentially.  Moreover, requests vary by bank and by geography and because there is no ‘standard’, it is difficult to predict exactly what information will be required.  Facilitating these different requests slows an already time-consuming process. 

Banks are tightening up on KYC due dilligence even if it's at the expense of the client relationship.

By way of example, the documentation required to open a single bank account could include, inter alia: the passports of all signatories; the names, addresses and dates of birth of all directors; utility bills and bank statements for all authorised signatories; documentation regarding US tax status (W8-BEN); certified articles of association; certified articles of incorporation; confirmation of EMIR status; confirmation of Dodd Frank exemption; and board authorisations.  In a recent discussion with James Kelly, Head of Treasury at Rentokil Initial, he commented on this, “‘Collating the data can be nigh on a full day’s work.  KYC requests really slow execution.”  The result?  Corporate treasurers are wasting time collecting documents and carrying out repetitive activities and the client experience is suffering.

There is a further serious problem – the security of sensitive client information and the secure delivery of documents to the right person. Documents can get lost, even when sent by special delivery requiring a signature.  This is a further waste of valuable time, with treasurers having to check that documents have arrived. Email is not secure, since sensitive information can be intercepted or misdirected.  Kelly expanded on this: “We’ve had instances where we’ve asked signatories for passports, utility bills and dates of birth and they’ve been quite concerned about how they are going to be sent and what we are going to do with the data.  I think we owe a duty of care to our signatories and anyone we are sending data on behalf of.”

Banks and corporate treasurers – different perspectives

Corporate treasurers are clearly facing a multitude of challenges surrounding the KYC requirements of different banks and time consuming on-boarding processes. One statistic reveals that clients may wait up to 34 weeks before they are fully on-boarded with an FI and each week of delay costs both the corporate and its banker.  When tendering for new business, banks may not necessarily disclose the extent of the documentation needed unless specifically asked, adding to the difficulties faced by corporates. 

But let us not forget that banks also face challenges, including fines; operational, staff and IT costs; lost revenue due to customer attrition; and the threat of reputational damage if they fail in the KYC due diligence required by the five big regulations (AML, FATCA, EMIR, MiFID and Dodd Frank). For banks, there is no competitive advantage to implementing these regulations – they are simply required. 

One fundamental problem is that essentially many banks do not view KYC from a client perspective at all.  This is damaging bank/client relationships and surely presents an opportunity for banks to offer an efficient, value-added KYC function as a differentiating feature. Kelly gave his perspective on this, too, “I think back to the days where I could open a bank account in 24 hours and now I am told that that’s never going to be possible again because of KYC. If we can start to at least tame the KYC process, then we might start to see a bit of an improvement in service again.”

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