It has been a busy year for the world of bank regulations, particularly Know Your Customer (KYC). Financial services regulations are notorious for their complexity and ever-changing demands for financial institutions and corporates, but another fuel for development in the KYC space was the FinTech community.
Researchers this year released new data on banks’ KYC adherence that highlights just how imperative it is that the financial services industry is able to more adequately address the challenges of compliance. According to a Fortytwo Data report published in October, 18 out of the 20 largest banks in Europe have been sanctioned for money-laundering activities in the last decade. Separate research published in September from Fenergo found anti-money laundering (AML) and KYC-related fines in the last decade totaled $26 billion — 91 percent to U.S. banks.
Innovators introduced new ways for banks to onboard their customers and manage their KYC compliance requirements, including firms like R3, which began piloting its blockchain-powered KYC solution with corporate treasurers and banks this year. Barclays also revealed its interest in blockchain’s ability to streamline KYC for banks after filing two patent applications in July related to the space.
It was also a busy year for banking technology provider Avoka, which announced it reached an agreement to be acquired by Temenos only weeks ago. Avoka CMO Don Bergal told PYMNTS what global markets can expect in 2019 in terms of bank KYC happenings. See what Bergal had to say below.
The Big KYC Trend From 2018
“The big change in regard to KYC and customer onboarding for business banking came in 2018, when FinCEN created much more stringent requirements for banks to identify the ownership of businesses before they open bank accounts, in order to prevent criminal activity like money laundering, tax evasion and terrorist financing,” he said. “Banks now hold a major responsibility under the threat of strict penalties to identify all business owners, big and small when opening an account — to analyze their financial history, citizenship, potential for money laundering, past involvement in fraud, and more before opening up an account. They must have precise information on the structure of that business (partnership / limited partnership / corporation), the ownership of the business, and what their shares are of that ownership. They must have these records readily available for the regulators, and beyond that, refresh them each year.”
Banks’ 2019 KYC Challenges
“Banks now face the challenge of managing an increasingly stringent KYC process while maintaining a pristine level of customer service, especially for small business banking clients, some of the most time-strapped individuals. The key is to make the customer onboarding journey easier for these customers, enabling them to capture their personal information in a secure, convenient way, that also enables the bank to hold onto these identifiers in order to present to the regulators, showing that they’ve positively validated all of these accounts in the onboarding process.”
The Small Business Banking Impact
“Over the past several years, we’ve seen first-hand that banks have made good progress on making retail products digitally available, but there’s still a big gap when it comes to small business banking. Many banks still offer SMB banking products in the same manner that they were offered 10 years ago. Banks that prioritize digitizing the customer onboarding process for their SMB banking clients will find themselves zooming ahead of their competitors, taking more market share in this crowded and competitive space.”
Final Thoughts For The New Year
“In 2019, banks will begin to shift the focus of their digital transformation strategy from purely focusing on retail banking to business banking. They haven’t been paying adequate attention to this segment, and we’re going to see that have to change.”