A new white paper, "Financial Institutions & Know Your Customer Rules", looks into how KYC rules are playing a bigger role in the compliance and security of financial institutions
The success and sustainability of many financial institutions rely to a great degree on reputation and integrity — and this has never been more true than today. More importantly, the very factors that protect a financial institution’s reputation, also prevents it from having to deal with expensive fines and onerous consent orders that can drastically increase the cost of doing business.
Indeed, there is even a new generation of consumer that reacts economically to the reputation of an institution, and it is increasingly common for institutions to endanger that reputation by running afoul with certain customers that they chose to accept. It’s these failures in financial institutions’ vetting process and its know your customer (KYC) compliance programs that can greatly cause harm to their reputations and integrity.
Global regulators are focusing on KYC rules as a way to ensure financial institutions across the world are not offering their banking services to illicit actors or being willfully ignorant of the risks that they are taking.
In a new white paper, Financial Institutions & Know Your Customer Rules: From Security to Solutions, published by the Thomson Reuters Institute and Thomson Reuters Regulatory Intelligence, we look at how KYC rules are playing a bigger role in the compliance and security of financial institutions. The paper also examines the challenges that financial institutions are facing in getting in compliance with changing KYC rules both in the United States, the United Kingdom, and around the world. Finally, we’ll see how some institutions and financial third parties are looking for solutions, either by creating new tech products or by outsourcing, to make their KYC challenges more efficient and cost effective.
The paper also shows that global regulators are focusing on KYC rules as a way to ensure financial institutions across the world are not offering their banking services to illicit actors or being willfully ignorant of the risks that they are taking. Regulators see these rules as being able to level the playing field and decreases gaps in screening for potential bad actors.
In addition, customers and other businesses are looking to make sure they are only associated with those financial institutions that do not have connections with bad actors. As global financial crime only increases worldwide — with a big boost in such illegal activity seen during the years of the global pandemic — more and more scrutiny will be placed on how financial institutions determine the real identity, suitability, and financial sophistication of their banking customers.
As the paper argues that KYC is here to stay, and its compliance and government oversight likely will only become more stringent. Financial institutions who fail to understand the importance of proper KYC compliance programs and their impact on institutions’ reputation and security are in for a mess of consent orders, bad publicity, and costly fines, among other negative impacts.