How to Future-Proof Cross-Border Know Your Customer (KYC) Requirements

Today's rapidly evolving regulatory environment means that firms are increasingly looking at faster and more cost-effective methods to comply with and reduce the burden of Know Your Customer (KYC) requirements. KYC Services is a core component of the overall S&P Global due diligence workflow process for brokers, custodians, corporates, fund admins, managers, and service providers. The Validatis platform provides company information from primary sources with the capability of representing regulatory verification processes.

Now that S&P Global KYC data is available via the Validatis platform, and vice versa, organizations who require access to legal entity data for KYC purposes both within Germany and worldwide, can access high-quality information on their counterparts through a single solution. Both organizations deliver comprehensive KYC profiles on legal entities, including data for Ultimate Beneficial Owners (UBO), Directors, Financials, and Nature of Business, which provides the industry with the information they need to support compliance with global KYC requirements.

Key challenges facing organizations operating cross-borders

Timeliness of access to data - When needing to operate cross-borders, one of the first challenges is getting access to timely and reliable KYC data on counterparts. There is a lot of data available in the public domain. However, whether that information is up to date or even standardized can be hard to verify. Validatis (for Germany) and S&P Global (for international companies) provide data from the true primary source of the information at the point of request, taking confidence in the fact the most up-to-date information is being received rather than information from a static database.

Large refresh and remediation populations - It's clear that the industry wants to move to a KYC model that is more event-driven instead of just a risk-based periodic review approach, however, perpetual KYC is not yet a reality for the vast majority of firms, and there will be some types of clients for which this will not be a realistic approach. Many organizations will still need to manage large refresh populations when risk cycles align, and the same problem can arise with any regulatory-driven remediations. These processes require significant operational heft, and firms are looking to solve this by automating data collection, streamlining client outreach, and maximizing operational efficiency. Validatis and S&P Global have the technology, data, and expertise available to support organizations in managing this challenge.

How to prepare for future market challenges

Control the increasing costs of internal processes - Scalability of an organization's internal processes is key, particularly when responding to regulatory drivers that impact their client base. When ramping up manual operational processes, this can increase costs exponentially, as well as leave firms with a bloated operational core during quieter times. Finding partners who can support technology-based solutions and flexible managed services can help firms find the scalability they need to succeed.

Adapt processes to regulatory change - We are in a regulatory environment that is changing shape often. Examples include the unprecedented speed with which Russian sanctions were rolled out globally earlier this year or the increasing importance of factoring in future ESG due diligence requirements into a client's (and third party) due diligence requirements. Working with partners that understand the regulatory landscape, and can respond in an agile fashion, is important for any organization managing a client due diligence process.

Four stages of KYC automation

Firms should treat perfecting their KYC and onboarding processes as a journey rather than trying to solve everything at once. Institutions will all be at various stages of the automation journey. Still, we see a logical pathway in moving from a low-maturity model (where operational processes are slow and manual) to a high-maturity model (where operational processes have a high level of automation and have been optimized).

Stage 1: Procedural Optimization - The first step should be for firms to evaluate their existing policies and processes and analyze what they can do to increase efficiency. Aligning global policies as much as possible, promoting data sharing within the organization, and eliminating redundancies create a strong platform for process optimization.

Stage 2: Data Sourcing - Connecting to sources of high-quality KYC data is an effective way of streamlining your processes. Having access to up-to-date data up-front provides a better picture of the client without creating friction. It can enable some decision-making without relying on contacting the client. Examples of this include APIs to public registers, robotics and web-scraping capabilities targeted at high-quality sources, document digitization capabilities, and trusted third party data feeds. The data collection process from clients can also be optimized through technology, which is another area S&P Global can support.

Stage 3: Assessment and Analysis - Firms can access a lot of client data but without the correct insights and interpretation, it's just noise. To sift through that noise would include data normalization and harmonization, validation of the data fed into their systems, and overlaying analytics to drive insights and decision-making from the data they collect. These analytics can use technologies like Natural Language Processing (NLP) and Artificial Intelligence (AI) to support client risk-scoring and alert resolution processes.

Stage 4: Ongoing Monitoring - One of the biggest drivers for change in the industry today is a move towards event-driven KYC, which will help institutions shift away from extensive and costly KYC refresh programs. To achieve this, the industry should work with technology partners to find innovative solutions that help organizations monitor for material changes in circumstance, assess the impact, and manage their response quickly and definitively.

Podcast with Bundesanzeiger (in German language)

Listen to the recent podcast with Bundesanzeiger, where our own Peter Renner, Managing Director, S&P Global Market Intelligence explains how to future-proof cross-border Know Your Customer (KYC) Requirements.

A partner you can rely on

S&P Global has a wide range of related capabilities, including third party management and due diligence, client outreach capabilities, client onboarding solutions, and a host of proprietary S&P Global datasets, including ESG data.

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S&P Global provides industry-leading data, software and technology platforms and managed services to tackle some of the most difficult challenges in financial markets. We help our customers better understand complicated markets, reduce risk, operate more efficiently and comply with financial regulation.

This article was published by S&P Global Market Intelligence and not by S&P Global Ratings, which is a separately managed division of S&P Global.