Olivier Portenseigne, managing director, Fundsquare, anticipates the importance of KYC in the future.
Asset managers understand the vital importance of know your customer (KYC) procedures given the potential for reputational risk. But increasingly investors are pushing back against the cost and bother of duplicated procedures when they subscribe to different funds. Bold action is required, and mutualisation offers the prospect of better quality KYC at lower cost.
It doesn’t make sense that fund servicing companies are each making their own laborious KYC checks on each investor. Similar but subtly different data and documents have to be sent by clients to a variety of industry players. Despite these efforts, the end result is a mess of overlapping point-to-point connections. Analysis made by an independent advisor* in Luxembourg has pointed to potential savings totalling nearly €1bn in the Luxembourg fund industry, Europe’s leading cross-border domicile. The lion’s share of this is due to inefficiencies in KYC and due diligence procedures.
There is a practical, achievable solution: a KYC utility hub owned and used by the industry. This would simplify procedures and cut costs, while resulting in fresher, higher quality knowledge about customers. Information on existing customers would be uploaded to a central warehouse, with data accessed by others when needed. The end-client would have to give permission before the data is accessed.
We are well placed to bring together the various actors to make a KYC utility a reality.
Managing Director, Fundsquare
Fund industry infrastructure specialist Fundsquare is pushing this agenda forward. For decades its high quality, neutral, innovative, mutually owned infrastructure has been contributing to the success of the Luxembourg fund industry.
This would have many benefits. Institutions would not need to collect this information again if it was already available. There would be less bother for investors, who would not be asked repeatedly for similar data. Standardised templates and procedures that would enable the various players to automate and streamline procedures. Information could also be drawn from a variety of sources, enabling greater cross-checking and data mining. Participants would work together to keep the information as fresh and accurate as possible. The risk of serving a black-listed individual or company would be reduced dramatically. Moreover, all this would come at a lower cost.
The market has generated a range of such utilities and FinTech specialists are working to extract value from large quantities of data. However, there is as yet no comprehensive solution for the specific needs of the European cross-border investment fund industry. This would need businesses, legislators and regulators to work together on a bold, ambitious solution.
* ”Europe's fund expenses at a crossroads"
FundGlobam, January 2017