Regulations are increasing KYC complexity

Global regulations are continuing to increase KYC complexity and are pushing banks towards technology innovation, according to a new study.

A report by RegTech company Accuity has revealed that 75% of senior compliance and correspondent banking professionals have encountered added complexity in interpreting and adhering to legislation.

With more stringent compliance standards being enforced compliance officers are under increasing pressure to have all relevant due diligence information at their fingertips. Regulations such as 4AMLD and the FinCEN Final Rule have placed greater emphasis on KYC processes, particularly when it comes to accurately identifying Ultimate Beneficial Ownership (UBO).

According to the annual Accuity Financial Counterparty KYC Survey, 69 percent of respondents admitted to finding the collection of reliable UBO information challenging, despite moves by several countries to introduce centralised UBO registers.

The majority (76%) of respondents also said that they continue to find rising costs and onerous processes a challenge in KYC. The highest priority for 67% of respondents is avoiding regulatory fines and enforcement action; however, a massive 81% are still struggling to adapt to changing global regulation.

Dalbir Sahota, KYC industry specialist at Accuity said: “The rising cost of compliance and changing regulatory requirements are driving financial institutions to constantly evolve their systems, but their operations are not designed for continuous change. The laborious processes involved in KYC continue to present hurdles, which can only be overcome with a more comprehensive systems overhaul.”

In addition, 77% of respondents believe they must undertake manual and repetitive tasks to complete KYC checks. However, recruiting and training of specialist staff has emerged as an issue frustrating the KYC process, with 68% of respondents citing skills shortage as a challenge.

The survey also found that 84% of respondents review high-risk entities in a different way to low risk entities – a figure that has increased from 74% in 2014. In 2014, 58% of respondents had over 250 financial counterparties; this reduced to 47% in 2016 and 43% in 2017. Over the same period, the number of financial institutions with fewer than 250 counterparties has increased.

Accuity surveyed 100 banks, financial institutions, corporates, and government and regulatory bodies across all regions to get a deeper insight into their pain points in conducting financial counterparty KYC.

Copyright © 2018 RegTech Analyst

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