What we talk about when we talk about know your customer utilities

What are KYC utilities? What were some attempts to create a KYC utility around the world?

The concept of consortiums and utilities is the key for future developments and financial institutions (FIs) collaboration. The utilities represent a data platform where information is shared across companies and industries to solve problems and difficulties, for example customer onboarding. In this model, the data sharing could be centralised (managed by a central entity), or decentralised (managed by all the utility participants). This concept is seen as the solution to managing costs, gathering data and eliminating data siloes. The know your customer utility could be consortium, a joint venture of collection, verification, storage, and sharing of clients’ data and documents to comply with each FI’s KYC procedures.

Today, countries, government and FIs consortiums are coming together to create these ecosystems. Through the creation of an ecosystem in the form of a KYC utility where FIs would gather data in the initial processes of onboarding or share data about their customers on an ongoing basis, FIs could mitigate the most challenging parts of the onboardingprocess, such as multiple data collection in siloes for the same entity. The formation of such a body would also shorten the process of onboarding and allow FIs to have a common view of what is going on with a prospect or customer.

Some regions, including South Africa, Singapore and Hong Kong, have undertaken the task to create a central ecosystem, which will help them to gather and manage data on an ongoing basis, as well as screen and verify their customers, with the ultimate goal of making the onboarding process smoother for all parties involved. Unfortunately, not all of these attempts have been a success, where such projects have taken on more than initially anticipated, and with that, failure has resulted.

We are now seeing other utilities in Europe taking shape. In the Nordics, for example, Nordea Bank, Skandinaviska Enskilda Banken (SEB), Danske Bank, DNB, Swedbank and Svenska Handelsbanken have established a joint venture company to develop a platform for handling KYC data. The European Commission has given its approval in accordance with the EU merger control rules. The joint venture company is preparing for its first commercial launch in 2020. The autonomous company will initially offer KYC services to the market concerning large and medium-sized companies based in the Nordic region.

Moreover, financial institutions in the Netherlands are taking a similar path by coming together in sharing customer due-diligence data in efforts to streamline payment monitoring process.

What are the benefits of creating a global KYC utility?

For financial institutions, the utility should streamline KYC and customer onboarding, and, most importantly, reduce costs through economies of scale. We mustn’t forget other benefits that the utility could provide, such as: responsiveness to regulatory requirement, consistency amongst FIs, faster auditing and reporting to governmental entities.

The costs of compliance are especially burdensome for financial institutions, especially when it comes to labour and technology. According to one of our recent researches, compliance costs on a global level are projected to be around USD 131 billion. The majority of that cost is in EMEA, due to rigorous regulatory demands and stringent sanctions requirements.

What are the key challenges FIs could face while creating a KYC utility?

Some of the challenges are related to getting all the financial institutions agree on what utilities should look like. What`s more, FIs must understand if utilities can be tailored in such a way that they all maintain their own policies but some of the basic data can be exchanged. From what we see, this is probably the best approach to KYC utilities.

Working with regulators and getting them to understand what is happening in their region and why financial institutions are doing this is also a challenge. In Europe, specifically, there are multiple regulatory requirements (related to GDPR and around information sharing and how the data is being exchanged on individuals); here, utilities still need to remain compliant with some of the other regulatory requirements that exist in the market. Therefore, striking the right balance between compliance regulation and data sharing is an absolute must.

How is LexisNexis Risk Solutions helping customers deal with the challenges of onboarding and monitoring & detect money laundering patterns and suspicious behaviours?

We see ourselves as a risk science company focused on coupling data and technology to help fight financial crime and fraud through providing actionable risk insight to our customers.. Whilst we gather the data, we work on standardizing it so that it is easy for financial institutions to consume it.

Our goal in financial crime compliance is to prevent any wrong doings and illicit movements of money, such as money laundry and terrorism financing, whilst fighting some of the largest challenges in our society linked to illicit money movements (drug and arms proliferation, sex slavery and human trafficking). It is of utmost importance to understand where is the money originating from and what are the networks and entities that are involved in the movements of the money and wrong doing. We, at LexisNexis Risk Solutions, can help with data and technology, account onboarding and payments screening so that financial institutions can keep their reputation up to par.

What is LexisNexis Risk Solutions currently working on?

Last year we acquired ThreatMetrix, the authentication and fraud prevention company - this acquisition enables a comprehensive approach to fraud and identity risk management. We are looking into bringing financial crime and fraud closer together and coupling some of those physical attributes that originally LexisNexis Risk Solutions focused on, and those digital attributes that ThreatMetrix can gather through the platform in order to have a full risk profile of an entity.

The combination of the expertise in digital identity of ThreatMetrix with the physical identity expertise of LexisNexis Risk Solutions is aimed at advancing the development of innovative solutions that enable companies around the world to protect themselves against existing and emerging fraud, risks and financial crime.

About Nina Kerkez

Nina Kerkez is a part of the International Financial Crime Compliance Market Planning team. From her base in London, Nina leads FCC market strategy in EMEA, our largest International region in terms of revenue and client numbers. Nina has started her career in business-to-business marketing, eventually transitioning her talents to technology product development. She specializes in go-to-market strategies and new product development for the risk and compliance sector with attention toward know your customer (KYC) efforts, for the last six years. Nina takes a customer-centric approach to strategy and product development, believing that a company’s customers is at the forefront of any business. She is adept at working for and advising complex global organisations on risk and compliance issues to deliver true business benefits.

About LexisNexis Risk Solutions

LexisNexis® Risk Solutions harnesses the power of data and advanced analytics to provide insights that help businesses and governmental entities reduce risk and improve decisions to benefit people around the globe. We provide data and technology solutions for a wide range of industries including financial services. Headquartered in metro Atlanta, Georgia, we have offices throughout the world and are part of RELX, a global provider of information-based and analytics and decision tools for professional and business customers across industries.