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Banks sign up to help develop centralised KYC database

Out-Law News | 05 Mar 2014 | 12:48 pm | 2 min. read

A number of banks have agreed to help build a new centralised database of information about customers that could be referenced as part of banks' 'know your customer' (KYC) and anti-money laundering (AML) checks.

Bank of America Merrill Lynch, Citi, Commerzbank, JPMorgan, Societe Generale and Standard Chartered have signed a "memorandum of understanding" with the Society for Worldwide Interbank Financial Telecommunication (SWIFT) which will see them involved in the joint development of SWIFT's new global KYC Registry.

Under the agreement, the banks will begin adding "their own KYC data" to the database, SWIFT said.

"Each Registry user will have a standardised access point to obtain details on their counterparties, while retaining ownership of their own information and control over which institutions can view it," SWIFT said.

The KYC Registry is a project SWIFT announced in January. It said that creating a centralised database of customer information that banks hold would help streamline the process and reduce the cost those institutions encounter when carrying out KYC and AML checks.

KYC is a term that broadly refers to the due diligence checks banks are obliged to conduct to ensure that their customers are who they say they are, are not involved in money laundering activities or in financing terrorism, for example.

SWIFT previously said that it would collate information from "participating banks" and "host and manage" the database. It will take responsibility for "verifying the completeness, validity and accuracy of the data" although individual banks that provide the information will continue to own the information and be responsible for it.

As well as adding their own data to the database, the banks signed up to help develop the KYC Registry will be involved in helping to set the processes around how the Registry will operate, SWIFT said. They will also provide input on "the documentation and information necessary to fulfil KYC requirements across multiple jurisdictions", it added.

"We welcome the close cooperation of these leading banks as we develop the KYC Registry," Luc Meurant, head of banking markets and compliance services at SWIFT said: "The banks’ involvement is an important step in this initiative to standardise the process and reduce the cost associated with KYC activities. The commitment from these banks demonstrates the importance of collaboration in financial crime compliance. Every SWIFT user will be able to benefit from our community-based solutions."

SWIFT said it expects more banks to join the KYC Registry scheme in the coming months.

“By providing a central, standardised utility solution replacing bilateral document exchanges between each set of counterparties, SWIFT is helping to reduce the cost, and risk associated with KYC compliance," Javier Pérez-Tasso, chief marketing officer at SWIFT, said. "It is encouraging to see the banks coming together around this initiative, which clearly demonstrates the value community-based solutions can bring to this challenge."

Technology law expert Angus McFadyen of Pinsent Masons, the law firm behind Out-Law.com, previously said that the KYC Registry is a "great example of how innovation is being used to drive efficiencies and cost savings into the banking sector".

"The challenge for any service like this is that traditionally conservative organisations need to make judgement calls on the extent to which they will open up their KYC/AML procedures and become reliant upon information gathered by others that follow different procedures – given the risks of getting KYC/AML wrong, this can be a tough call," he said.

Last year Morgan Stanley and HSBC confirmed that they were working with business processing sourcing provider Genpact and financial information company Markit on designing a new technical solution they hoped would help them adhere to KYC obligations more efficiently.

At the time Genpact and Markit said that the new service would allow businesses to interact faster with clients, provide for "significant cost savings through operational and technological efficiencies" and reduce the need for "multiple demands for documents and information".