• Each country has its own approach to the development of the shared KYC utility
  • The shared KYC utility provides a significant input in combating financial crime
  • The shared KYC utility enables greater use of innovation in preventing and combating financial crime

Resource sharing and widespread usage of innovation in combating financial crime has become the spotlight of today’s world. Special attention is drawn to the continuous improvement of customer due diligence and development of platforms for information sharing. The goal is clear and unequivocal: strengthen the ability to reduce the risks associated with money laundering and terrorism financing (ML/TF).

Currently, each country and financial institution chooses solutions that are most convenient for itself, resulting in multiple individual solutions. However, in order to achieve the highest standards of compliance, it is essential that each country, in collaboration with its financial sector and the largest actors of the real economy, decides on the single best way for the development of the shared KYC utility. Such cooperation would bring remarkable benefits since a country which achieves and maintains the highest standards of compliance improves its reputation and credibility in the international setting, reduces the overall administrative burden, and decreases the costs of business partner and customer due diligence.

Continuing its endeavor of ensuring compliance with the best world practice in the field of compliance in Latvia, the Finance Latvia Association (hereinafter – Finance Latvia) has prepared a report on the possibilities of introducing the shared KYC utility in Latvia. The report provides a broad insight into possible models and their advantages but does not itself propose to create a one.

“Last year, an innovative solution was implemented in Latvia – a public-private information sharing partnership. The roots of this model can be found in the United Kingdom. On November 23, 2018, high-level workshops were held in Riga on the topic of the best available technological solutions for “Know Your Customer” principle’s implementation, and for information sharing partnerships that would lead to more effective combating of financial crime “AML/CFT: RegTech & Partnerships”. These events were organized by Finance Latvia in collaboration with ACAMS Baltics Chapter, Microsoft and Citadele. After assessment of opinions and information provided in the events, and cooperation with representatives of public and private sector, Finance Latvia has prepared a report on the possibilities of implementing the shared KYC utility in Latvia.”

– Jānis Brazovskis, CAMS, board member, Finance Latvia.

 

The main findings of the Finance Latvia report on the possible models of the shared KYC utility:

  • some obliged entities may outsource shared KYC utility services inter alia by creating a joint venture regarding all or a particular part of the due diligence process; such model is currently envisaged by the European Commission in the newly agreed Nordic KYC utility project;
  • the shared KYC utility would work similarly to the way any credit information bureau does, allowing obliged entities to exchange information for the purpose of AML/CFT risk management in a standardized way (presentation of Jānis Timermanis, Head of A/s “Kredītinformācijas birojs” on KYC Utility and other innovations for AML, in Oslo (Norway) on June 11 is available here. Additional information: Shared KYC utility Edgars Pastars Association May 2019 and KYC-models-and-mechanisms-Ragnar-Toomla-SEB-May-2019);
  • an individual stores his/her identification data and the key data from public registries (including tax payments) in a specified way, and is able to transfer that data to a merchant or obliged entity without having to fill out detailed questionnaires each time on the data that is at the disposal of the state; the model operates in Singapore, and is currently being discussed in the Baltics within the framework of a project financed by the European Commission (DIGINNO KYC project - Is cross-border KYC possible? Rainer Osanik presentation PDF).


Additional emphasis is placed on the following:

  • the shared KYC utility does not provide an exception to not perform customer due diligence or solely rely on the due diligence carried out by another obliged entity;
  • the shared KYC utility merely provides the obliged entities and merchants with additional information that they would otherwise not be able to obtain;
  • the shared KYC utility would reduce the need for the client and business partner to submit the same information numerous obliged entities or business partners.

The report emphasizes that, generally, the shared KYC utility would apply to corporates, whereas to individuals merely in specific, high-risk cases or if the person him-/herself is willing to transfer his/her personal data using the shared KYC utility. The full report can be found here: KYC utility report June 2019 PDF

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