by Charles Haryott, Head of Proposition and Product, KYC and Client On-boarding Solutions, and James Swenson, Global Head of Operations and Delivery, Enhanced Due Diligence, Thomson Reuters
As corporations of all sizes expand internationally, their supply chains are becoming increasingly complex and geographically diverse. At the same time, the regulatory environment becomes more challenging. This combination of factors creates a major new set of risks that many corporations have only limited ability to monitor and manage. Organisations today are being held responsible not only for their own activities but also for the actions of customers, suppliers, vendors and partners.
Treasurers are caught in the middle of this risk and regulatory dilemma, with two sides to their compliance and monitoring requirements. Firstly, the onus is typically on treasury to provide the information that allows their banks to fulfil their own regulatory obligations, such as increasingly stringent know your customer (KYC) requirements. Secondly, corporations need to conduct the appropriate level of due diligence on their own third party relationships to help them manage the risks that these relationships present. Treasurers’ expertise in both due diligence and risk management equips them to take a role in this process, but what is becoming clear, is not only the importance of supporting compliance and third party risk requirements from both perspectives, but also the need to achieve this without adding significantly to the administrative burden, or interrupting business operations.
The regulatory burden
For companies working with a single bank, in a single jurisdiction, supporting the bank’s KYC process by providing the necessary company, shareholder and officer information is relatively straightforward. For multi-banked corporations operating internationally, however, the documentation and resource implications for treasury can be very significant. Not only do KYC regulations differ across countries, but banks also adopt their own risk management procedures, which may also vary across jurisdictions. Furthermore, compliance challenges are not restricted to supporting banks’ regulatory requirements. With a raft of new and emerging regulations having a direct impact such as the Foreign Corrupt Practices Act, Conflict Minerals Rule (US Dodd Frank Section 1502) in the United States, and the Bribery Act and Modern Day Slavery Act in the United Kingdom, the regulatory burden is becoming heavier for a large number of organisations resulting in higher compliance costs.