Banks 'must go beyond box-checking' for successful KYC operations

The Know Your Customer (KYC) process used by banks needs to be overhauled to serve customers' business requirements and for enterprise risk management to be effective, it has been claimed.
 
Traditionally, the process has been approached with a tick box methodology, but there is scope for banks to make more effort in protecting businesses, the Reserve Bank of India (RBI) has suggested.
 
In a recent speech, RBI deputy governor Dr KC Chakrabarty described KYC as "one of the most misunderstood concepts in banking parlance". The process should not be viewed as a simple couple of checks to prove identity and address; rather it forms "a critical component of a bank's risk management framework", he said.
 
"A customer-centric business needs to know its customer, the nature of his business and the inflows/outflows into the accounts, if it is to provide customised business products and solutions," he said.
 
Taking the concept even further, banks need to understand the risks facing their consumers' businesses, such as fraud or delinquency, Mr Chakrabarty commented, adding that they also need to assess any potential for financial losses, reputational and legal risks that could arise from links to multi-level marketing business or terrorist activities.
 
He suggested a more joined-up approach to the process, adding a B to the KYC acronym to stand for Know Your Customers' Businesses and suggesting an R at the end to stand for Risk. These elements, he said, should be ingrained in the banking business, not only to ensure procedural compliance but also because the practices will be good for the bank's business.
 
On related issues, Mr Chakrabarty said that regulation of banks is becoming a more global issue in light of the financial crisis, and said that institutions need to implement best practices within their operations. There also needs to be a stronger credit appraisal system in place to address quality issues relating to assets, he said.
 
"A paradigm shift is taking place in global banking activity and its regulation with greater emphasis on managing financial risks," Mr Chakrabarty concluded.
 
Earlier this year, PwC said that KYC dominated the financial landscape in 2013, and the issue will continue to be dominant during the remainder of this year. Regulators are looking for failings to be rectified and firms will also need to implement the recommendations of the Basel Committee on Banking with regards to managing the risks of money laundering and the financing of terrorism, the company said.

 

Banks 'must go beyond box-checking' for successful KYC operations

The Know Your Customer (KYC) process used by banks needs to be overhauled to serve customers' business requirements and for enterprise risk management to be effective, it has been claimed.
 
Traditionally, the process has been approached with a tick box methodology, but there is scope for banks to make more effort in protecting businesses, the Reserve Bank of India (RBI) has suggested.
 
In a recent speech, RBI deputy governor Dr KC Chakrabarty described KYC as "one of the most misunderstood concepts in banking parlance". The process should not be viewed as a simple couple of checks to prove identity and address; rather it forms "a critical component of a bank's risk management framework", he said.
 
"A customer-centric business needs to know its customer, the nature of his business and the inflows/outflows into the accounts, if it is to provide customised business products and solutions," he said.
 
Taking the concept even further, banks need to understand the risks facing their consumers' businesses, such as fraud or delinquency, Mr Chakrabarty commented, adding that they also need to assess any potential for financial losses, reputational and legal risks that could arise from links to multi-level marketing business or terrorist activities.
 
He suggested a more joined-up approach to the process, adding a B to the KYC acronym to stand for Know Your Customers' Businesses and suggesting an R at the end to stand for Risk. These elements, he said, should be ingrained in the banking business, not only to ensure procedural compliance but also because the practices will be good for the bank's business.
 
On related issues, Mr Chakrabarty said that regulation of banks is becoming a more global issue in light of the financial crisis, and said that institutions need to implement best practices within their operations. There also needs to be a stronger credit appraisal system in place to address quality issues relating to assets, he said.
 
"A paradigm shift is taking place in global banking activity and its regulation with greater emphasis on managing financial risks," Mr Chakrabarty concluded.
 
Earlier this year, PwC said that KYC dominated the financial landscape in 2013, and the issue will continue to be dominant during the remainder of this year. Regulators are looking for failings to be rectified and firms will also need to implement the recommendations of the Basel Committee on Banking with regards to managing the risks of money laundering and the financing of terrorism, the company said.

 


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