by Steve Pulley, Managing Director, Risk Managed Services, Thomson Reuters
In the past, only basic KYC checks were performed on new banking clients. The globalisation of banking and the financial crisis of 2008 put an end to this relatively relaxed approach. Driving this change since the early 1990s has been the Financial Action Task Force (FATF), established as a G7 initiative to develop policies to combat money laundering and a prime mover behind the adoption of a risk-based approach (RBA). RBA was designed to move compliance on from a rigid, ‘one size fits all’ methodology to a more pragmatic style, which, in principle, frees up banks and other financial institutions (FIs) so they can direct their resources more efficiently, ensuring the greatest risks receive the highest attention.
The less welcome side-effect though, has been the allowance for banks (and their national regulators) to interpret KYC policies and procedures as they see fit, leaving corporates struggling to keep up with different requests from their various banking partners. The timing and nature of data requests from financial institutions are often inconsistent, resulting in an administrative burden and potentially increased costs for their corporate clients.
In addition, the pace of regulatory change is accelerating globally and the consequences of non-compliance keep growing. In South Africa, regulatory change around KYC has recently gained significant momentum. For example, new electronic fund transfer regulations were introduced in June 2015, and a range of amendments to the Financial Intelligence Centre Act (FICA) are being pushed through in 2016.