As the true impact of the pandemic only begins to be realised, digital customer due diligence is helping financial institutions adapt to new working practices and maintain high quality services.
In these turbulent times, uncertainty remains the key word - not only for public health and the global economy, but also for how the crisis will influence the behaviour, practices and tactics of criminals intent on exploiting the situation for their own ends.
As an industry, we are still in the early stages of identifying the potential impact of the pandemic on fraudulent activity. One of the key findings by the Financial Action Task Force (FATF) suggests that criminals may find ways to bypass Customer Due Diligence (CDD) measures and thus exploit the temporary challenges institutions are facing, such as remote working.
In response, FATF is encouraging the full use of a risk-based approach to CDD. Supervisors have also put in place many new CDD measures to try and ease disruption while protecting their institutions from fraud. These include:
- Applying simplified due diligence measures where lower risks are identified. For example: accounts created specifically to facilitate government payments to individuals or businesses and offering access to digital/contactless payment solutions.
- Providing guidance where there may be legitimate reasons for customers not able to provide information for ongoing due diligence or ‘know-your-customer (KYC) refreshers (e.g., if they are confined, under quarantine or ill) and that the usual processes for dealing with these situations (including exiting the customer relationship) may not be appropriate at this time.
- Allowing reporting entities to accept recently expired government-issued identification until further notice in order to verify the identity of an individual (although this is still required to determine the authenticity of the identification).
- Considering the application of delayed verification provisions for new business relationships in line with the FATF Standards (e.g., by implementing transaction limits). Reporting entities can accept digital copies of documents as an interim measure, with the originals to be sighted in due course.
- Encouraging the use of responsible digital identity and other responsible innovative solutions for identifying customers at on-boarding and while conducting transactions (COVID-19-related Money Laundering and Terrorist Financing, FATF, May 2020).
The challenges facing compliance professionals highlight the importance of forming a strategic path towards the digitisation of KYC/CDD processes. This is the vision for SWIFT’s KYC Registry, which provides access to up-to-date KYC information that can be exchanged via a secure online platform, regardless of where the user is in the world.
The KYC Registry has already helped over 5,500 banks and corporates reduce the amount of time spent collecting initial information and documentation from correspondents, as well as reducing duplicate work and delays in collecting and requesting data.
What’s more, the central, online registry model offers the assurance that the information is coming from the source, accelerating the shift to the digitalisation of documents, while maintaining a global standard in terms of document requirements (e.g. signature required).
Maintaining excellence in challenging times
Global disruptions, such as the current COVID-19 pandemic, have added a new layer of complexity to CDD by disrupting bilateral reach with some institutions, as more teams have to work from home. However, regulators such as the Financial Conduct Authority (FCA) in the United Kingdom have made it clear that firms are still expected to provide full support and excellent service to customers during this period, regardless of remote working challenges.
For the SWIFT community, we have added extra flexibility to the KYC Registry to further ease the CDD burden during the pandemic while continuing to help organisations remain vigilant and flag anything that seems suspicious. For example, we have added the ability for users to note that a document signature is missing, meaning information can still be shared even if signatures aren’t currently available due to remote working.
However, pandemic or not, we know that KYC is a big challenge for many. In a survey carried by EuroFinance and SWIFT in September 2019, 93% of Treasurers said that responding to KYC requests is more challenging today than in 2014.
Some of these challenges are all too familiar: frequent requests at different time of the year, expired documentation, changes in executive personal, new stakeholders, etc., all of this requiring more time and resources.
Despite all the uncertainty and disruption, 2020 can still be the year for banks and corporates to kick-start their digital CDD journey. A good first step is to start collecting KYC data by leveraging the power of SWIFT’s KYC Registry.
To find out more about SWIFT’s KYC Registry, speak to one of our experts.