Accuity annual financial counterparty KYC survey reveals:

• Local interpretation of regulation adds complexity to the KYC process
• 69 percent of respondents find collecting accurate ownership and UBO information difficult
• Lack of skilled staff presents a challenge for 68 percent
• Reduction in counterparty relationships suggests de-risking continues, but pace is slowing

The annual Accuity Financial Counterparty KYC Survey has revealed that 75 percent of senior compliance and correspondent banking professionals have encountered added complexity in interpreting and adhering to local legislation.

As global regulators continue to introduce and enforce more stringent compliance standards in efforts to mitigate the risk of financial crime, compliance officers are under 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). 69 percent of survey respondents admitted to finding the collection of reliable UBO information challenging, despite moves by several countries to introduce centralised UBO registers.

Additionally, 76 percent of respondents continue to find rising costs and onerous processes a challenge in KYC. The highest priority for 67 percent of respondents is avoiding regulatory fines and enforcement action, yet 81 percent are struggling to adapt to changing global regulation, which has gathered pace in recent years.

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.”

77 percent reported that to complete KYC checks, they must undertake manual and repetitive tasks. The recruitment and training of specialist staff also emerged as an issue frustrating the KYC process, with 68 percent of respondents flagging skills shortage as a challenge.

“There are significant efficiency gains yet to be made in this industry, and technology innovation will be key,” Sahota added. “We expect to see financial institutions automate more of their KYC processes as well as looking to new developments in artificial intelligence and machine learning to overcome some of these efficiency challenges – so there is cause for optimism.”

Financial institutions have also been struggling to justify the profitability of maintaining higher risk counterparty relationships, due to the increased effort required to conduct due diligence and obtain the necessary documentation. In the survey, 84 percent of respondents confirmed they review high-risk entities in a different way to low risk entities – a figure which has increased from 74 percent in 2014.

“An additional cause for optimism is a slowdown in the de-risking trend we have seen develop over the last few years,” continued Sahota. “This latest survey suggests that although de-risking continues, the pace may be slowing.” In 2014, 58 percent of respondents had over 250 financial counterparties; this reduced to 47 percent in 2016 and 43 percent in 2017. Over the same period, the number of financial institutions with fewer than 250 counterparties has increased.