Editors, Regulation Asia, March 26, 2015

SWIFT has introduced a free-to-use utility that will help smaller institutions achieve compliance and reduce the cost and problems of procedures.

Globally, about 80 clearing and settlement systems each carry between 500 to over 13 million payments every day. While maintaining secure messaging connectivity and common message standards are essential to operations, the spiralling cost of KYC and access to this system has is especially burdensome for smaller banks in Asia and other developing markets. SWIFT’s solution is a new free-to-use utility that allows all participants to exchange KYC related data.

The exchange of information is actually quite a cumbersome process. 7,000 correspondent banks use SWIFT to exchange 1.3 million pieces of information each year. Zelda Anthony, Head of Compliance Services, Asia Pacific, for SWIFT remarked, “It’s a costly process where each bank uses a different format. KYC information is non-standardised so it is costly and complex.” She emphasised, “SWIFT is a cooperative, community based organisation that is providing the KYC Registry to its member institutions.”

After the financial crisis, KYC and its related activity, AML, have become processing issues that have not been fully resolved in terms of creating homogenous functions and common standards. “Banks approached SWIFT and asked them to build a correspondent banking KYC utility with data validated by SWIFT. The de-risking of activities by big banks means reducing counterparty risk of many of their correspondent banks. The Asian Development Bank says this problem has impacted smaller banks across the region.”

Anthony described the extensive process. “For example, mandatory information needed at the source includes tax data and answers to questionnaires. This correspondent KYC issue is an expensive proposition for small banks. It requires an officer to manage along with the necessary documents. Some documents are 17 pages, others are 64 pages. And the issues and specifications change regularly. There is the cost of understanding the process and relationship management.”

Such a burdensome set of procedures can only be made efficient through common standards. “SWIFT has produced a utility called ‘KYC Registry’ for entering data and uploading documents that allow a global clearing bank to view them and match the standards required to qualify KYC. It is free of charge to enter data. SWIFT validates certain data such as the bank license. The data is owned by banks and it is protected as to who can view it. Through their SWIFT profile, banks can view their traffic of transfers to show and analyse where their business originates.”

A free-to-use utility within a large membership stands the best chance of industry acceptance. “The SWIFT KYC Registry is part of a greater trend to stabilise and commoditise KYC and compliance solutions. Over the last few years, SWIFT’s team in the compliance area has been increased from five to 150 people. The financial service industry’s competitive situation in compliance systems is fragmented and expensive.”

SWIFT is in a unique position to unify and stabilise fragmented compliance solutions. “It needs a consistent roadmap that is jointly developed and supported by banks in cooperation with regulators. The industry needs to agree on clear standards that are easy to validate and trustworthy. SWIFT is well positioned to achieve this because it is a not for profit organisation.”

SWIFT is more recognised in the payments and processing business and not as much in the compliance field to date. However, Anthony emphasises their commitment to this utility. “The KYC Registry was launched in December 2014 and is presently used by 200 entities. The target is for 2000 users by the end of 2015. SWIFT has hired compliance teams to support the rollout as we continue to build market awareness. 150 SWIFT people are involved in this project along with other managers. There are about 300 to 400 people engaged to some extent in this important endeavour.”

Anthony elaborates on the extent and amount of information involved in meeting KYC regulations. “SWIFT is focused on the KYC vertical for the wholesale and correspondent banking segment rather than the client facing and front end, onboarding process. This is a unique area of value to banks. The data involved in the utility concerns the bank’s identity, its ownership and other information that demonstrate its trustworthiness. SWIFT’s Compliance portfolio also includes Sanctions Screening, Sanctions Testing and Compliance Analytics (which involves examining a bank’s transaction history over SWIFT).”

“SWIFT’s utility is an important benefit for developing economies where smaller banks need to efficiently gain access to the global banking system for trade,” says Anthony.


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