Expert Says Banks Need Data Providers

Charles Zhu, Enigma’s vice president of products, said during a conversation with the media that the Know Your Business (KYB) requirements can become a heavy burden for financial institutions that form the internal process of meeting the criteria.

Expert Says Banks Need Data Providers

At the same time, the expert said that for companies and organizations operating in the financial sector on the basis of a long-term development strategy, the use of data can be much more important than simply fulfilling a mandatory standard within the framework of business organization in accordance with the system of official rules.

Charles Zhu says that arrays of information can help banks improve the level of efficiency of customer service. He noted that in this case, the advantages will be primarily manifested among customers from among small enterprises through the use of innovative products and services.

Charles Zhu stressed that the regulatory framework for KYB regulation was formed relatively recently. The Know Your Client initiatives are related to the Patriot Act, which was passed by Congress and became law after the September 11, 2001, terrorist attacks. There was a lot of time to develop the regulatory framework, but KYB mandates appeared only after the publication of the Panama Papers seven years ago. The Cybersecurity Law was adopted as part of efforts to prevent so-called legal gaps, using which certain individuals could hide fraudulent actions or other crimes disguised by various companies.

A more recent INFORM Consumers Act of 2021 required online marketplaces to collect and analyze more data about sellers operating on these platforms. Also, the Financial Crimes Enforcement Network (FinCEN) is currently developing new rules that provide for the collection of detailed information about the ultimate beneficial owners or any person who owns more than 25% of the business.

Charles Zhu says that the current pace of regulation is fast. According to him, many financial institutions spend up to 5% of revenue and in some cases more to ensure compliance.

In the financial services sector, monitoring by supervisory authorities is gaining momentum. This trend is due to the fact that many enterprises have become more active in using digital technologies. Also, one of the reasons for the intensification of regulation in this area is the complication of supply chains.

Charles Zhu says that against the background of the diversity of regulatory requirements among financial institutions, there may be a misunderstanding of who exactly should be responsible for meeting the criteria, what data should be collected, and how to ensure compliance with KYB standards, which change on an ongoing basis.

Currently, there is an understanding that traditional information collection mechanisms are no longer sufficient. Charles Zhu says that the presentation of data on paper is no longer applicable. The expert notes that historically banks have coped well with the task of prudence, but in the era of digital technologies, this process should be smoother and not involve friction. Separately, he stressed that currently, customers do not need to wait for months and repeat sending emails many times to open accounts in a financial institution.

Charles Zhu talks about the urgent need for a data collection method that is characterized by a higher level of automation compared to the traditional mechanism.

The process of collecting information corresponding to modern technological realities should include automatic checks of the statements of the Secretary of State and a similar algorithm for enterprises and their owners on various watch lists.

Charles Zhu says that fintech companies also need to improve reporting standards. Many of the firms in this category were fined due to the fact that after an investigation of their activities related to cryptography, shortcomings in transparency and compliance with information control standards were revealed.

Charles Zhu stated that in this case, the introduction of automation faces difficulties, which consist of the fact that many financial organizations are trying to conduct KYB and KYC operations on their own, involving teams of employees engaged in manual data collection and verification of firms and owners on sanctions lists. According to him, manual checks and a slow pace can cause the loss of customers. He also noted that the hybrid approach applied both within companies and within the framework of interaction with suppliers allows to reduce the amount of work in manual mode and saves time.

The vice president of Enigma says that the hybrid approach and automation of some internal functions have a positive ripple effect. In this case, banks can use data on compliance with KYB requirements and on corporate clients to adapt new offers for consumers.

As we have reported earlier, California Plans to Review Data Privacy in Cars.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.