Big Data Redefines KYC?

Thanks to technology, KYC is evolving to Know Your Country

To the average American, the acronym KYC probably sounds like a misspelling of the infamous KFC, but those of us in the financial services industry immediately recognize the acronym as referring to Know Your Customer, one of the cornerstones of today’s efforts to reduce risk and fraud in banking. The definition of KYC is about to change, however, as the acronym evolves to the risk management tool, “Know Your Country.”

It used to be understood that a successful banker would need to know his or her customers. One hundred years ago, chances are good that the home town banker would be intimately acquainted with his or her neighbors investing money, or seeking loans. Fast forward to today, and life is just not that simple anymore, particularly with national and global banks having hundreds of branch offices in multiple countries.

After 9/11, the U.S. Patriot Act in 2001 formalized the requirement for financial institutions to “know” their customers, primarily as a deterrent to terrorist financing and money laundering by drug cartels. Before then, banks encouraged anyone to open an account with identification as simple as a passport, driver’s license or even a utility bill. While the Patriot Act added further restrictions, financial institutions were lax in adhering to them — contributing to the problems the entire banking industry experienced in 2008.

Today, KYC is one of the cornerstones in how banks manage risk and is strictly enforced by reporting requirements and with financial penalties for non-compliance. But speaking at the Society for Wordwide Interbank Financial Telecommunications business forum in London last summer, Thomas Piontek, head of regulatory services at Commerzbank AG, forecasted that KYC will come to mean “know your country” by as early as 2020. By then, he predicts the industry will have stepped away from customer identity and verification in favor of regularly examining the history of a customer’s transactions — something that technology facilitates through granular transaction monitoring.

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Richard Paxton

CEO of the Alacer Group. Sharing the latest news in financial crimes and best practices that enable financial institutions to prevent money laundering.

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