The Importance of a Shared KYC Network

Posted by Julie Esser on Jun 5, 2019 7:55:13 AM

The Importance of a shared kyc network

There was a point in time when the concept of shared branching raised some eyebrows, but today the methodology is accepted, widely used and effective. And there is an important connection between the shared branching model and Know Your Customer (KYC) that is being overlooked in the credit union industry. To this end, the member experience could be better served if credit unions joined the same KYC network and provided seamless authentication to membership on a global scale.

A shared KYC model concept is akin to a proposed shared Bank Secrecy Act (BSA) model. In October 2018, the Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation, the National Credit Union Administration, the Office of the Comptroller of the Currency and the U.S. Department of Treasury’s Financial Crimes Enforcement Network made a public statement regarding how financial institutions can efficiently and effectively share resources to manage respective BSA and anti-money laundering (AML) obligations.

“Collaborative arrangements involve two or more banks with the objective of participating in a common activity or pooling resources to achieve a common goal,” the statement read in part. “The cost of meeting BSA requirements and effectively managing the risk that illicit finance poses to the broader U.S. financial system may be reduced through sharing employees or other resources in a collaborative arrangement with one or more other banks. These arrangements may also provide access to specialized expertise that may otherwise be challenging to acquire without the collaboration.”

Credit Unions’ Shared KYC Model

In an effort to promote seamless authentication for members or customers, certain organizations in the financial services industry are taking forward-leaning steps. Take, for example, the Board of Governors of the Federal Reserve System. This system provided potential benefits from financial institutions collaborating together, including a structure of internal controls to assure ongoing compliance with the BSA. Independent testing at one bank, for example, could be utilized to conduct the BSA/AML independent test at another bank. And within a collaborative arrangement, a qualified instructor could be hired at a shared cost to conduct BSA and AML training.

There are numerous and important use cases for shared KYC in the credit union space—from onboarding to risk score metrics to determining loan eligibility or liability. And, with CUNA reporting that there are nearly 104 million members and roughly 5,750 credit unions in the United States, the benefits of a shared KYC network, much like the successful shared branching model, would enhance the credit union member experience by streamlining decentralized authentication.

Topics: KYC