The idea of centralizing Know Your Customer (KYC) / Customer Due Diligence (CDD)  efforts within a single clearing agency is taking hold in a few regions, highlighted here in Hong Kong. The concept has multiple potential benefits, including:

  • Reducing the overall industry effort for onboarding and KYC efforts (Instead of multiple banks conducting independent research on a single entity.  The agency conducts and clears those entities for each requesting bank).
  • Banks focus their limited resources on monitoring, screening and reporting.
  • Reduced overall costs incurred by financial institutions, and therefore customers.
  • Increased transparency: instead of a customer threatening to take their business to a different bank that might be less investigatory, the only recourse to access the financial system is to provide the required supporting documents (including beneficial ownership and EDD documents that bad actors are less likely to want to provide).
  • Governing authorities have a single source to share information with -- instead of with thousands of financial institutions.
  • Reduced customer attrition resulting from de-risking of improperly researched entities.
  • Focus on AML prevention versus catching bad actors (proactive).
  • Transferred risk to the government agency, which oversees the financial system (shared risk overall versus concentrated risk).
  • Reduced KYC risks for financial institutions, real estate, money service businesses, foreign and domestic traders, etc.
  • Agency coordination with counter-proliferation / export compliance agencies (information sharing for purposes of counter-terrorism financing).
  • Increased independence for sales and client-facing persons.

For a full breakdown of a centralized clearing concept: