The Deloitte Horizons Conference was organised at the Philharmonie in Kirchberg
Photo: Jessica Theis (archives)
Regulation: The financial sector should outsource “know your customer” compliance programmes, a service provider has argued during an industry conference in Luxembourg.
“Funds are just throwing people and technology at the problem” of growing compliance demands, according to a speaker at a conference on the future of Luxembourg’s financial services sector.
That is because executives do “not understand there are other options” for meeting know-your-customer requirements, the presenter argued during the fourth annual Horizon Conference, organised by consulting firm Deloitte on Tuesday.
Under KYC rules, financial institutions must check that clients are who they say they are--and not someone using a stolen identity, for example--and their financial transactions really are for the purpose they have stated--and not for terrorist financing, for instance.
“KYC is complicated because of the fact that there are so many different regulations that you have to gather data for”, Anna Mazzone of Thompson Reuter’s KYC Managed Services unit, told Delano before the conference. She was in Luxembourg to promote her firm’s new B2B outsourcing service.
Mazzone estimated that: “most businesses do business with at least five to ten banking or brokerage counterparties. Funds usually [are working with between] 75 to a couple hundred banks and brokers around the world. Each one of those trading counterparties has an obligation [under differing regulations] to do KYC on the funds.”
Privacy protection concerns
In addition to the “regulatory burden” of complying with the separate rules in each market, data privacy is increasingly at stake. Many financial institutions “are asking for more executives’ personal information, such as passport information”. But after providing these details, banks “don’t know where [the information is] going”.
In Mazzone’s view, current compliance programmes “are not sustainable” and already some “banks realize it’s better to hire someone like us to do this for them.” Her service collects “documents from banks’ clients and the end-clients authorise us to share the documents”.
Each end-client provides a specific list of financial institutions that Thompson Reuters can provide their details to “and then we keep an audit of who we shared the information with.”
The industry executive stated that she is asked about data protection rules “all the time” but that “my lawyers tell me that 99% of the world’s privacy laws” allow this type of model. “We don’t actually obtain any documents from the banks.”
The service is hosted out of a data centre in the UK, which means it is “subject to EU data privacy laws, which we’re very comfortable in managing.”
Five major rulebooks
At the moment, the service is focusing on compliance with five major sets of rules--AML, Dodd-Frank, EMIR, FATCA and MiFID--in “11 major capital markets”.
The service launched earlier this year for the 7,000 clients on Thompson Reuters’ foreign exchange platform. In July, it will be available on Tradeweb, one of the world’s largest fixed income trading platforms, she said. Several banks will “go live in the fourth quarter” and Mazzone expects “at least 25 financial institutions” to begin using the service next year.
The concept could gain more steam as the number of regulatory programmes continues to grow, such as economic club OECD “supporting the roll out of ‘son-of-FATCA’ in 30 other jurisdictions over the next few years” during a summit earlier this year in Australia.
The compliance complexity problem, she said, “is not going to go away.”