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Swift expands its KYC utility

Global / 17-07-17 / by
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Cloud-Computing-Data-Security-Technology_News

Global transaction network Swift will soon expand its KYC registry to non-Swift members.

The registry was set up in December 2014 to enable the Swift community to collectively address the global compliance challenge by streamlining the exchange of know your customer (KYC) information.

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, which helps eliminate the high level of duplication currently happening in the market.

To date, membership of the registry has been limited to Swift-connected institutions, but, from September 2017, all supervised financial institutions (entities subject to supervision by a financial market regulator) will be able to join.

“We are getting towards a tipping point for what we originally set out to do, which was to create this global utility for correspondent banking,” Paul Taylor, Swift’s director of compliance services, tells GTR.

Swift has around 11,000 members, 7,000 of which have correspondent banking activities and are the target of the KYC registry. Of these, almost 4,000 have now joined the service, which Taylor says is a “good level of adoption” at this point.

Extending the registry membership to all supervised financial institutions will especially support smaller institutions to align themselves with global, industry-agreed best practices and standards.

“It’s really for those banks that occasionally need to avail of correspondent banking services through another bank. It will enable those types of banks to demonstrate transparency and the fact that they operate at the same standard or level as other players in the correspondent banking universe,” says Taylor, who could not quantify how many non-Swift members are expected to join as a result.

He adds that the move will also bring more benefits to the registry’s existing members, as they will profit from broader coverage of their correspondent banking networks, which will then encourage even more to take up of the service.

“It’s a reinforcing move in terms of the original market segment,” Taylor says. “We are still trying to go from the 4,000 banks on the registry to the 6-7,000 banks we’ve got on the network. It might encourage more banks to join if perhaps they are dealing with people off the network as well.”

The way in which the registry works is that each bank shares its data in response to access requests from its counterparty, which then uses the data as part of its own KYC processes. Each institution retains ownership of its own information, as well as control over who can view it.

Since its launch, 23,000 individual shares of data and documentation have happened through the registry.

“In terms of sharing between parties, that has really kicked off over the last 12-18 months, where people have started to use it within their due diligence processes, either through onboarding or ongoing due diligence needs,” Taylor says.

The feedback has been positive. “Some of the bigger banks have told us that the registry is saving anywhere between 30 and 50% of their time in terms of gathering the data and documents they need for due diligence,” he says, but adds that the network still lacks calculations for how this is ultimately impacting the banks’ spending on compliance.

The cost and complexity of compliance with regulation, including KYC requirements, remain some of the biggest barriers to the trade finance market. To address these issues, new regulatory technology – also known as ‘regtech’ – solutions are on the rise. As previously reported by GTR, shared utilities are one such technology that can help ease the mundane compliance processes that are often duplicated across financial institutions. This isn’t necessarily limited to KYC: they have the potential to store the processing and documentation of other compliance requirements, such as payments monitoring, too.

Swift is currently working on other projects to expand its compliance services portfolio. In April, for example, it announced it was developing a new payment screening solution to enable smaller banks to automatically detect unusual or suspicious payments, helping them better prevent fraud and cybercrime.

As for its KYC registry, the company is currently undertaking proof of concepts to see if it can serve other parts of the industry, details of which Taylor could not yet reveal.

For now, the main goal is to secure broader adoption, and thereby unlock the full potential of the service, he says.

“We are expecting to close on a higher number by the end of this year. Ultimately, if we can get to around the 60-70% adoption figure, that would be deemed a good success.”

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