News stories are filled with some kind of AML breaches, frauds in Banking and Financial sector across the world almost daily. Also it’s not uncommon to see the Banks getting penalized or fined by the regulatory authorities for not maintaining proper processes
in place to avoid these kinds of incidents.
With the increased focus on AML, Terrorist financing and fraud prevention, KYC has gained importance like never before. Banks and Regulatory authorities across the world are going gung ho about ‘Know Your Customer’. Banks are running behind the customer
to gather information and documents to validate the identity of the customers. Regulatory authorities are setting up deadlines, fines and penalties on the banks to complete and maintain updated ‘know your customer’ data.
But, is KYC really that important. And will a good KYC stop money laundering and frauds. That is a million dollar question!
Only KYC may not be sufficient to identify money launders or fraudsters. It may also not be able to stop good customers turning bad during their transactions with the Bank, but then, a journey with a good start often continues to be on a right track. And
a good KYC can definitely provide a good start to the journey of the bank and customer together.
Traditionally gathering proper, detailed and complete information for a customer as part of KYC is a prerogative of the bank. When the customer approaches for entering into a relation with Bank, should the Bank’s be left on their own to gather information
and validate and authenticate it?
I feel that the government can play a big role in ensuring a strong KYC by the Bank. Why? For the simple reason, that Government is well equipped to have all the required information from various sources and avenues with the requisite power and authority
to gather that information.
With so much of technology available these days, getting information is no difficult at all. Myriad information across international borders can be gathered without spending a bomb or days to gather information. However, one very big challenge with online/internet
information is the authenticity and genuineness of the information being gathered. Fake Facebook, google and other such id’s is common news. Though the banks cannot use this information for direct consumption as validated source, it definitely helps them to
make judgments based on it.
But for the Government, getting information is really easy. As part of their daily operations, various departments of the Government gather information about individuals and entities.
It is very important for the government agencies to have seamless information flow within themselves. Also, gathering information about a customer should not be an onus only on the bank and left to them to identify ways and means to do KYC. Even the Government
can play a big role by sharing appropriate information about customers through their various departments where details might be available.
The various ways in which the Government can be instrumental in helping the banks in KYC are:
- Single Point of contact Department - The human resource or other relevant department can act as a Single point of contact and provide information to banks for a customer by interacting with various government departments.
- Something on lines of Credit Bureaus can be created which provides data for customers, after interacting with the various departments.
- Income Tax/Revenue department – It can provide the information about the revenue/income details of the prospects. Based on this the Bank can validate the information given by the customer as part of the KYC.
- Police/Intelligence Agencies – They can provide details on the criminal records of the customer.
- Revenue intelligence/Serious Fraud department - It can provide information about any frauds/scams details.
- External Affairs – It can help in providing information when there may be links of a customer in other countries.
- Other such relevant departments.
Alternatively, the Government can create a separate committee which has a database based on information gathered from various agencies or department. The Banks can share the customer information with that committee. This committee would then scan through
the details shared by the Bank with their database to identify any negative information for that customer.
The Government agencies may not be able to disclose all the data about the individual or entity as some of it is confidential, but shareable data will surely help the banks in having a strong KYC. Also, there have to be strong processes and systems put in
place to ensure no leakage or wrong usage of information. Just like the way, the government is able to get information from the banks as and when required, similarly sharing of information by the Government with the Banks during KYC, will help the Banks to
make sure that their customer due diligence is strong enough to avoid further issues.