“independent outlook on kyc landscape - independent outlook … · customers...

ByDenise Lim

Partner – Risk Assurance,

PricewaterhouseCoopers

“Independent Outlook on KYC Landscape"

Presentation by PricewaterhouseCoopers (PwC)

IBF Connect (Compliance) 2016"GETTING COMPLIANCE READY FOR FINANCIAL SERVICES IN 2020”

Independent Outlook on KYC Landscape

http://www.pwc.com

http://www.pwc.com/

Contents

Introduction

PwC 2

Evolving landscape of KYC utilities 3

Risks & Rewards 14

Further considerations 17

Q&A 19

Evolving landscape of KYC Utilities

PwC 3


Need for industry-

wide collaboration

PwC 4

FI perspective

Increasing KYC costs and length of time to complete necessary checks

Pursuit of an ever changing regulatory target

‘Good enough’ vs. risks of KYC failure (e.g. reputational, operational, legal, concentration)

Financial institutions face scrutiny by global regulators of anti-money laundering (AML) processes, systems, and controls.

Sub-optimal customer experience

Customer perspective

Multiple and duplicated information requests and points of contact

Long onboarding process

Time consuming renewals

Regulator perspective

Difficult to oversee individualFI approaches and processes

Increasingly onerous and complex international standards

Recent top tier banks’ KYC failures

Individual regulators could rely on KYC services provided by a utility

Market drivers

OV

ER

VIE

W

KYC/AML, FATCA data and documents, but no regulatory service willbe provided.

Initially focused on legal entity data and relationship between legal entities.

Full-service offerings (onboarding, maintenance, analytics & reporting).

Partnered with other service providers for sanctions, adverse media & PEP check services

Partnered with Genpack to launch KYC Services (KYC.COM), an enhanced version of Markit’s legacy Counterparty Manager product (MCPM).

CTI acquisition brings Tax Compliance / FATCA into scope with credible service.

Partnered with other service providers for sanctions, adverse media & PEP check services

Partnered with several large banks to offer centralized KYC document repository for correspondent banks.

Provides SWIFT activity reports showing banking activity with high risk countries

Launched Accelus IDOrg web-based portal in Aug 2014.

Leverages the strength of Accelus world-check and IntegraScreen from counterparty risk assessments, sanction checks and detailed entity and individual background checks.

Acquired GoldTeir to support document collection and management

TA

RG

ET

S

EG

ME

NT

Banks/Broker Dealers (consumers of information). Investment Managers, Hedge Funds, and Corporates (providers of information)

Broker-dealer, institutional and corporate banking businesses of banks and other financial institutions

Correspondent banks and their clients

Financial institutions and their clients including correspondent banks, asset managers, hedge funds and corporations


Key players

PwC 5

Evolving landscape of KYC Utilities.

a utility which is designed to undertake core due diligence on behalf of all regulated entities within a single

jurisdiction, potentially mandated

Types of Utilities (2/2)

3

Jurisdictional Utilities

PwC 6

Evolving landscape of KYC Utilities.

Industry Collaborations Utility Service Providers

a utility developed by a specialist venture in collaboration with partner financial institutions.

a utility or similar ‘KYC as a service’ offered by a single provider

Types of Utilities (1/2)

1 2

PwC 7

Customers

Financial institutions

Now

• Significant process redundancy

• Length new client acceptance periods

• KYC as one of many tasks

• KYC spending as ‘cost’

• Frequent regulatory oversight

• Inconsistent KYC standards

• Marginal KYC effectiveness

Now

KYC Utility

Long term

• Scale of economies for all through utility datasharing

• Rapid and uniform new client acceptance

• KYC as core competency for a central utility

• Potential reduction in

regulatory visits

• Common KYC standards

• Optimal KYC effectiveness

• Jurisdictional reputation enhanced

Long term KYC shared utility

Customers


Customers

Utility 1 Utility 2

Medium term

Medium term

• Limited scale of economies for market

• Utility FIs achieve benefits of scale and average cost model

• Only utility FIs customers benefit from more rapid client on-boarding

• KYC standards only common within the utilities and notacross the market

• Benefits for regulators limited to

utility providers



KYC Utility development

8PwC


Evolution of Utilities

Identification and Verification

9PwC

Ongoing CDDMonitoring &

ReportingFalse Positive

reduction

Implementation of advanced ID

standards


Moving to a higher authentication standard

Biometrics are a mechanism to authenticate a user iswho they claim to be. The authentication defines theinherence (who you are) via bio-feature scores with theuse of technical sensors.

Main Applications of Biometrics:

1. Authentication

2. Access and attendance control

3. Travel control

4. Financial and other transactions requiring authorization

5. Remote voting (authorization)

6. Use of automatic working devices

7. Action control

10PwC


What are biometrics?

Analogue Digital Advancement

One to one matching

One to one matching

RFID matching

OCR recognition

Biometrics

One to one confidence

One to many uniqueness

11PwC


Biometrics are not all created equal

Fingerprint

Hong Kong Immigration

• 437 e-Channels had been installed at all control points

Translate

illuminated

images of

fingerprints into

digital verification

Voice

Citi Call Centre

• Automatically verify a client’s identity in under 15 seconds

• No PINs or lists of

questionsneeded

Numerous unique

biological traits

that go into

producing

signature sound

Face

Bank of Montreal

• Verify transactions using selfie pay

Detect faces and

quantify their

features to match

against database

Behaviour

Telesign

• Analyse keystrokes,mouse movements and touch-based input on mobile devices

Create profiles of

quotidian habits

and run

application

silently to verify

Iris

Unique patterns in

the coloured circle

around pupils to

authenticate

Singapore / Malaysia border

• Avoid the long queues for checking passports for 50,000 motorcyclistsdaily

DNA

Most reliable form

of identification by

taking a physical

sample

FBI

• DNA samples to be processed using Rapid DNA systems locatedin police booking stations

• Include palm print and facialrecognition in country’s Identification System (NAFIS) for police access

Multimodal

Add

authentication

factors to

overcome the

limitations of a

single technology

Australian government

12PwC


Moving to an industry view

Implementing high and inescapable ID standards that

cannot be duplicated

ID could be shared across FI’sas could ongoing Due Diligence of each unique entity within that cohort

Moving it or itspublic key to ashared registry

13PwC

Risks & Rewards

PwC 14

Risks & Rewards

What are the benefits of adopting a KYC utility model?

The potential cost efficiencies gained through centralisation of

onboarding processes

Earlier revenue recognition for banks through a reduction in the time required to make customer

acceptance decisions

Improved customer service levels through a reduced number

of touch points and reducedon-boarding times

Increased standardisation of KYC quality and compliance

across the industry

PwC

18

15PwC

Risks & Rewards

Quality of the information provided by the Utility

PwC

19

(quality does not comply with bank’s policy)

Incomplete KYC Information (additional client

outreach may be needed to satisfy any requirements over and above what’s received from the Utility)

Screening requirements

(KYC utility screening proceduresmay be aligned with thebank. E.g. a bank might have a different view of what is seen as significant adverse news

Operational Controls

(lack of controls in place especially when the Utility relies on the information

provided by other third parties)

Banking Secrecy

(the usage, safekeeping of client information and controls in place may not be in line with BS requirements)

KYC utility’s information contradicts other

trusted sources

(when considering signing up to multiple KYC utilities)

Risks associated with KYC utilities

PwC 16

Further considerations

PwC 17

Further Considerations

What to consider before selecting a KYC utility?

Operations Governance

SelectionTechnology

How will the utility’s systems integrate with existing technology?

What technology can be rationalised to deliver cost savings?

How robust are the utility’s information security processes?

Technology

Operations

What is the business case for using a utility?

How do existing onboarding procedures need to be updated?

What ongoing monitoring will be required to manage the performance of the utility?

What happens with the utility offers a new service or product?

Regulatory How do a utility’s standards align with existing KYC policies?? What elements of current requirements will need to remain ‘in-house’?

Regulatory

Who are the key stakeholders in the KYC process?

What is the optimum governance model for implementing and maintaining oversight of performance?

Governance

What is the output from the utility? What other services does the utility

offer? Are there strategic benefits to partnering

with a particularutility?

Selection

Legal

Legal What are the legal implications and data privacy concerns of using

a utility? What contractual risks are there during implementation of a utility?

PwC

21

PwC 18

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