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All aboard SWIFTly

For those who may have missed it- an interesting initiative from SWIFT in the KYC\AML\onboarding  area, forming part of its SwiftRef data suite. Launched earlier this year, the service aims to be a central repository of due diligence data for correspondent banking. Subscribers will access and share initial KYC data which will then be updated by ongoing transactions, enabling early warning of aberrant activity. Responsibility for data accuracy and attendant legal liability rests with the subscribing banks.   The risk-based approach favoured by the FCA and other regulators is already a form of “substituted compliance”. Bank of America Merrill Lynch, Citibank, Commerzbank, JP Morgan, Societe Generale and Standard Chartered have signed up to the pilot project to define and refine the product from mid-2014; the user-configurable database is expected to go live by year end with 500 contributing banks.

“Big Data” is an overused and essentially meaningless term. Meaningless because data’s utility is not defined by volume, but by aggregation, integration and analytical flexibility. The post-crisis regulatory tsunami forces commoditisation of product while squeezing margins, impelling firms to embrace a client-centric culture. This ineluctably focusses attention on the onboarding process-improving the client’s first experience and reducing time-to-revenue. The project has obvious potential to deliver on these fronts, though its real benefit may be in enhanced monitoring and maintenance. SWIFT’s data sharing scheme holds the promise of being big and smart, faster and better, providing the exponential benefits accruing from network expansion and mass data-patterning. Although SWIFT are well placed, the idea isn’t new- a race is on to dominate the LEI-enabled KYC\AML\onboarding and FATCA centralised data-space. In January, the Swiss-based KYC exchange launched a web-based platform to share Due Diligence data, followed in February by San Francisco based start-up Strevus offering a data sharing and compliance management platform and Thomson Reuters announced their KYC “central clearing house” Accelus Org ID in March .

While interesting, laudable and potentially profitable, the above initiatives are likely to be an adjunct to in-house work, rather than any sort of replacement. The SWIFT scheme is limited to correspondent banks, their literature goes as far as redefining KYC, which apparently now denotes- “Know Your Correspondent”; as such, it can only begin to shoulder a small fraction of the due diligence burden. Benefits to data-pooling are clear, but the dangers are equally real; network effects leverage and accelerate both good and bad data, this proposal only burnishes the lustre of “golden copy”.  Each participating bank will control exactly what and how much data it contributes to the repository, the need to exclusively retain valuable data may outweigh the community principle. In a field as fraught with liability and consequent fines, it remains to be seen how many banks will (or should) trust their own reputations with their competitor’s work. Finally, in an environment where data-handling excellence directly translates to competitive advantage, it may be counter-intuitive to subscribe to a shared resource that can only militate against differentiation- if data is the new frontier, it may profit firms to stake their own claim.

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