Amid the growth of blockchain-based know your customer solutions, Swift is putting its weight behind its centralised KYC registry, opening it up to corporates.
According to the global payments network, its KYC registry will be open to all 2,000 Swift-connected corporate groups from Q4 2019. They will be able to use the registry to upload, maintain and share know your customer information with their banks.
Swift’s KYC registry is an online portal that was set up in December 2014 to enable the Swift community to collectively address the global compliance challenge by allowing users to manage and share due diligence information. The intention is to ease the burden of compliance with KYC requirements, a job that is extremely inefficient and mired by time-consuming, manual processes and the duplication of efforts.
The figures speak for themselves: some major financial institutions spend up to US$500mn annually on KYC and customer due diligence, according to Thomson Reuters. Its 2017 survey found that the average corporation spends 26 days a year to provide KYC regulatory information.
To date, membership of Swift’s registry has been limited to financial institutions with correspondent banking activities, who use the registry to conduct KYC on their correspondents. Instead of each bank having to reach out to its counterparties to gather the information individually, they can, through the registry, find it all in one place. More than 5,000 banks are already in the registry.
Commenting on its decision to expand the registry to corporates, Swift says in a statement: “Major corporations use a range of banks in different jurisdictions around the world, with whom they need to exchange information to enable KYC checks. Data is held in different places and is often incomplete or out of date, making the process time consuming for both corporates and their banks. The absence of uniformity, differing jurisdictional requirements and the lack of standardised data across the corporate KYC space increases these inefficiencies further.”
As such, the expansion is welcomed by corporate players, with John Colleemallay, senior director of group treasury and financing at Dassault Systèmes, calling it “a dream come true for all treasurers, considering the heavy workload involved in providing the same documentation several times in multiple formats to our banking partners”.
Blockchain vs centralised model
The announcement marks Swift’s move into a space where other firms are already offering similar KYC utility solutions. IHS Markit’s KYC.com, for example, provides banks with KYC information on corporates, asset managers and hedge funds. Thomson Reuters has a similar offering.
It’s also a market that has attracted fintech innovators over the last couple of years, with the likes of Cambridge Blockchain and Tradle offering blockchain-powered KYC utilities. R3, too, has run a number of trials for sharing KYC data using its blockchain-based Corda platform.
The emergence of blockchain technology has prompted growing criticism of existing KYC solutions (like that of Swift), with some deeming the centralised model inflexible and, in light of new technologies, one that may well go extinct sooner rather than later. Already, centralised KYC utilities have struggled to gain industry-wide uptake: over one-third of banks do not use a KYC utility due to cost, operational considerations and the challenge of complex technical integration, according to the ICC’s 2018 global trade survey.
Promoters of blockchain, meanwhile, say the decentralised approach provides a modern and more viable way forward for a truly global, efficient and secure KYC utility. “Past attempts to create KYC utilities have focused on centralised repositories of data, managed by third-party vendors acting as an intermediary between banks and their customers, which can in turn create significant inefficiencies,” Abbas Ali, director of partner solutions at R3, told GTR for a recent fintech feature. “These utilities also force standardised KYC policies upon their customers and the one-size-fits-all model does not work for competitive financial institutions.”
As opposed to centralised solutions, blockchain technology eliminates third-party data aggregators and centralised repositories of data. Instead, it utilises the power of the distributed, immutable ledger to drive greater operational efficiency through a digital process flow and a streamlined way to access real-time up-to-date customer data. Participants in a network will, with the right permission, be able to view a record, and the blockchain will give them full transparency on how information is entered, by whom, and when it was verified.
Swift, however, deems its own model a success, emphasising the registry’s strong take-up in the correspondent banking space thus far.
“If you look at the usage of the data, not only do we see that we have more banks that are starting to consume and use the KYC registry, but we also see that the one that has been using it already last year they are re-consuming as well. It’s not just about using the data – the banks are really putting in the effort of institutionalising it and using it on a business as usual basis,” Bart Claeys, Swift’s head of the KYC registry, recently told GTR.
He said that KYC “seems like the perfect use case for distributed ledger technology”, but argued that it doesn’t yet solve the real issues faced by banks today. He further emphasised that Swift is a trusted third party that has played a crucial role in standardising the information provided to the registry.
“For us, at this stage, I haven’t yet seen the value addition of the distributed ledger technology related initiatives compared to what we have in our centralised solution,” he said. “In my view, a lot of these blockchain initiatives have been initiated from a technology perspective, yet today little has been said around the level of acceptance from a compliance perspective within the banks. Ultimately, be it a blockchain-based or centralised utility, you will be required to have the backing and support from the compliance side within each of the banks.”
Over time, Swift says it aims to extend its KYC registry to non-Swift connected corporates.