KYC - How long can you go?


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KYC - How long can you go?

  1. 1. KYC:<br />HowLow<br />Go?<br />CanYou<br />Andrew Zerzan<br />MMU Working Group<br />October 2010, Kuala Lumpur<br />
  2. 2. Overview<br />What is KYC? <br />Who came up with this stuff? <br />Specific Obligations<br />Relevance to Mobile Money<br />Challenge: Are we asking too much?<br />Solution by the World Bank<br />Interview with a Champion: Maybelle Santos, Smart Money (PH)<br />Tools by MMU: AML Risk Methodology<br />
  3. 3. What is KYC? <br />KYC = Know Your Customer procedures. <br />Gathering information on the customer’s identity<br />Verifying the customer’s data with 3rd party documentation<br />Core tactic in Anti-Money Laundering (AML)<br />Helps provider and police detect/track criminal activity<br />All financial service providers, including in MM must fight money laundering<br />KYC is one process among many in AML<br />Record keeping<br />Transaction monitoring<br />Reporting suspicions<br />And more! <br />BIG part of what banks do at account opening<br />Has some overlap with anti-fraud and credit evaluation processes<br />MNOs too: customer demographic intelligence<br />
  4. 4. Who came up with this stuff?<br />International standard setters <br />The Basel Committee and <br />Financial Action Task Force on money laundering & terrorist financing (FATF) <br />Powerful lists of rules that regulators need to enforce in each country<br />Standards are risk-basedso you apply more if risk is high, less if risk is low.<br />Both are based in Europe (France and Switzerland) but standards are global – from New York to New Delhi, everyone implements them<br />Shaped in the 90s with *major* push after the terrorist attacks in 2001. <br />Countries are assessed for their compliance with the standards<br />FATF <br />World Bank and IMF<br />
  5. 5. Specific Obligations from the Standards<br />Providers are to identify customers and verify the customer data<br />Identification<br />Verification<br />Customer Name<br />Date and/or place of Birth<br />Residential Address<br />Unique ID number<br />Occupation<br />Phone number<br />Sometimes more<br />Passport or National ID card<br />Birth certificate <br />Utility bill to prove address<br />Employee ID card w/ photo<br />ID check via central database<br />And possibly more...<br />
  6. 6. Relevance to Mobile Money<br />Mobile money providers are subject to do KYC processes<br />Even if partnered with a bank<br />Account opening<br />Cash-in/out<br />Training of agent retailers to ask the right questions, get the right documents and record it all<br />Biggest regulatory barrier to acquiring new customers?<br />
  7. 7. Are we asking too much? The experience of banks <br /><ul><li>KYC requirements designed by developed countries
  8. 8. Many in developing countries do no have the required documents.
  9. 9. especially government ID/passport and proof of address
  10. 10. E.g. In Tanzania, 95% have no government ID at all.
  11. 11. However, application of the requirements is often tougher in developing countries! </li></ul>Basic Bank Account: Sample KYC <br />
  12. 12. Are we asking too much? (2)<br />Huge numbers of people are excluded from the financial system because of cost but also KYC<br />Can’t prove address because no utility bills – don’t have electricity!<br />No ID card – government may not issue except to wealthy for travel on passports<br />No photo ID – the poorest often do not hold jobs that require employee photo ID or can afford school where student ID is required<br />No birth records – many poor are born in unregistered homes, not a hospital with records<br />KYC is not intended to exclude people from financial services, it is intended to detect and scare away criminal money launderers<br />Are there ways to reduce criminal risk without reducing access? <br />
  13. 13. Solution through other measures<br />KYC just one tool to combat crime<br />Are we forgetting the others?<br />Account monitoring?<br />Limits ?<br />Can these be used to reduce KYC? <br />World Bank research says Yes! <br />Criminals want to launder huge amounts of money undetected.<br />Limits on accounts/transactions/frequency force a criminal to move money through multiple accounts – Expensive<br />Monitoring systems flag suspicious money movements (i.e. Several accounts in same area in same time period loaded up completely and then transferred out) – detectable<br />
  14. 14. Solution through other measures<br />Sample best practice: European Union<br />Low-risk payment devices can have reduced KYC controls<br />How to make it low risk? <br />Transaction ceilings (EU is €1,000/year max)<br />Account balance limit (EU is €2,500 max)<br />Formula for Mobile Money for the Unbanked? <br />Limits + Account Monitoring = Low Risk and Reduced KYC<br />With reduced KYC, how low can you go? <br />Depends on the country: <br />WB says it is conceivable to eliminate all documentation requirements.<br />Just easy identification data to record: name <br />
  15. 15. In practice <br />Interview with Maybelle Santos of Smart (Philippines MNO)<br />
  16. 16. Q&A<br />GSMA Tool: Mobile Money: Methodology for Assessing Money Laundering and Terrorist Financing Risk – available on MMU Blog website<br />Thank you<br />Andrew Zerzan<br /><br />
  17. 17. Q&A<br />Unanswered questions?<br />Send them to:<br />e-mail<br /><br />SMS<br />+60123211275<br />(include your name)<br />or<br />