Good news, treasury professionals—SWIFT will open its know-your-customer (KYC) repository to corporates later this year. But unless it has strong standards for corporate KYC, it is unlikely that this platform will ease corporates’ frustrations with this process.
SWIFT’s platform, dubbed the KYC Registry, first launched in December 2014 and currently includes nearly 5,200 of the 7,500-plus banks on the SWIFT network. Beginning in Q4 2019, all 2,000 SWIFT-connected corporate groups will be eligible to join the registry and use it to upload and share their information with their banking partners.
ONE REGISTRY TO RULE THEM ALL?
Multiple KYC repositories have launched over the past several years, but the absence of a central repository has kept some corporates from using them, noted Caitlin Sinclair, senior client and commercial strategist, risk managed services for Thomson Reuters. “They are kind of waiting to see who is the leader, or the ‘winner’ from a utility perspective before they upload their documentation and agree to use one platform,” she said.
Could SWIFT’s KYC Registry be the game changer that corporates have been asking for? Corporates are frustrated by having to turn over data multiple times to their banks and giving data to multiple repositories would be equally frustrating. If SWIFT’s solution can emerge as a place where corporates could put all of their KYC data, and only have to do it once—that could be something enticing indeed.
“I find this very interesting and promising,” said Magnus Carlsson, AFP’s manager of treasury and payments. “Since SWIFT has such reach and connections with thousands of banks globally this KYC registry could be a very useful tool for corporates. Then there is of course always the question of cost.”
Damian Glendinning, former treasurer of Lenovo, noted that the advantages of the KYC Registry are obvious—scale, acceptance by banks, the power of SWIFT and the fact this is already working between the banks themselves for their correspondent banking relationships. However, he also noted that arguments also remain in the other direction.
“How well is KYC for correspondent banks actually working?” he asked. “Can the solution be applied easily to corporates? I suspect KYC between banks tends to be much more standardized than corporate KYC.”
Additionally, Glendinning questioned whether banks’ risk management teams would accept documents in the database as equivalent to paper. He also was unsure whether regulators would accept these documents, or that they would accept this database as sufficient evidence that banks performed adequate KYC when things go wrong. “The lack of clear standards here remains a major issue,” he said.
As for the corporates themselves, Glendinning is unsure whether they will believe in SWIFT’s solution enough to force their banks to accept KYC documents in this way, if they have to. “It is true that it is harder for the banks to refuse if the solution is SWIFT—but the fact remains that this is something they will only do if corporates force them to,” he said. “Until now, corporates have been much more inclined to complain than to actually take action.”
Furthermore, Glendinning questions whether corporates trust SWIFT in general. “I think the majority do—but there are some holdouts who still view it as a bankers’ club, which caters for the corporate customer as an afterthought—as is shown by the fact they developed a bank to bank solution first,” he said.
Nevertheless, he believes that “every reasonable corporate treasurer” would be happy to see the KYC Registry succeed. “My own view has always been that I don’t care too much whose name is on the solution, as long as there is one and it works,” he said. “It is clearly a step in the right direction, and has a better chance of succeeding than most.”
EASING CORPORATES’ CONCERNS
Corporates and banks have expressed their desire to see the corporate segment added to the KYC Registry for some time now, explained Marie-Charlotte Henseval, head of KYC compliance services for SWIFT. She is confident that standardization will be achieved for corporate KYC, largely due to what SWIFT has already achieved with the banks on its registry. “We have seen that the level of standardization that we have put in place on the platform has increased efficiencies, be it for the banks that provide their data, or the banks who are collecting data,” she said. “The Registry covers up to 90% of the information correspondent banks typically require for due diligence.”
As KYC requirements for the correspondent banking network increase in severity, those standards must also develop, Henseval added. “We’ve continued working with the user group to make sure that the standard is evolving and aligned with the regulations,” she said.
Conversely, there aren’t really any corporate KYC standards right now, but that could change if a large influx of businesses join the registry. According to Henseval, SWIFT has been working with corporates and banks to get a sense of what corporate KYC standardization could look like. “The idea is to have a standard specifically for corporates,” she said. “We want to make sure the registry is the one-stop shop where corporates can upload their information and share it with their banking partners, because this is actually what corporates are looking for. They are looking for a place to upload and maintain their data in a secure and standardized way and to be able to control how they share that data.”
As for whether banks would accept electronic documents as equivalent to paper, this has been a key focus of SWIFT since launching the KYC Registry. Henseval noted that SWIFT has seen a shift in the mindset and the behavior of the banks, with many of them now moving from paper to electronic for KYC data shared between one another. “We are quite confident that the same shift is going to take place in the corporate-to-banking KYC,” Henseval said.
And that should also appease the regulators. According to Henseval, while regulators specify the information they want banks to collect, they’ve left it up to them to determine how they collect that information. “Regulators are not going to tell the bank what source should be used,” she said. “They just have to satisfy what the regulator is asking for. And the registry is used today by all of the large banks, so that would indicate that it is working for regulators.”For more insights, download AFP's Treasury in Practice Guide, How Treasury Can Ease the KYC Burden, underwritten by Thomson Reuters.