Are you KYC registered yet

Banks have been dealing with the massively increased cost and complexity of regulatory compliance and reporting for almost a decade now. And there seems no end in sight.

This is certainly the case in the cash and custody industries. Regulators around the world have been demanding more and more from banks, while – thanks to digitization, globalization and other factors – the environment has become exponentially more complex. That in turn has increased the complexity of the compliance and reporting landscape. It has also made the due diligence process between correspondent banks far more difficult than it used to be.

Consider for example the Wolfsberg Due Diligence Questionnaire, an early attempt to standardize the client onboarding procedure among correspondent banks. When the Wolfsberg Group published its first AML questionnaire for correspondent banks in 2004, it had 27 questions. In its latest iteration, the broader Wolfsberg Correspondent Banking Due Diligence Questionnaire, the number has increased to some 135.

And it’s still not enough. For the most part, the process remains highly individual, with banks now designing their own questionnaires for specific products and geared to the risk profile of the partner bank. It is also highly manual, tying up large amount of resources to produce the answers and complete the applications.

In today’s environment, such a situation is no longer tenable. If banks are serious about tackling this problem, they will have to collaborate, developing standards to help make these processes more efficient and, where possible, to automate them. Ideally, regulators would also be involved at an early stage to ensure the new utilities are compliant.


The good news is, we already have some examples of this kind of collaboration.

Five years ago, for instance, the network of custodian banks, including UBS, started engaging in a standardization process on the securities front as part of the Association for Financial Markets (AFME).

The working group was able to define a package that would cover 80% of the questions relating to key industry topics such as regulation, risk, operation and business continuity. This resulted in the launch of the AFME Due Diligence Questionnaire in 2016.

While the AFME questionnaire was a good start, having found common acceptance by a large number of banks, its scope was not universal. Some systemically relevant Tier 1 banks continue to use their own questionnaires, driven among other things by the enhanced scrutiny and reporting requirements they face.

This has led to a desire among Tier 1 banks to create an additional questionnaire to meet their extra needs. Due to the increased complexity caused by local domestic flavors of regulation, this is likely to be a much harder task.

All together now

The effort would, we think, be worth it. Not only can they add efficiency to the process. Such efforts can also serve as a model for standardizing any number of other areas where reporting or due diligence between banks needs to take place – from those prescribed by regulators to due diligence around products and services to the RFP process for interbank projects.

In our experience at UBS, the standardization process consists of a number of basic steps.

  • First, define an appropriate service catalogue if possible to reach an 80% threshold of standard questions or items.
  • Second, make that available in a format that can be easily leveraged by clients or counterparties so that they can set filters and analyze the questions internally.
  • Finally, discuss the right channels to be used to deliver the data. There won’t be a one-size-fits-all format, but where possible use digital channels that can potentially be automated. These can be supported by machine learning/robotics where possible and appropriate, leaving people to cover the complex, individualized, requests typical to one local regulator versus the international one.

While such efforts can be done bilaterally, the effect will of course be greater if network groups or bank associations come together to drive the initiative.

Considering the serious nature of this issue, we at UBS would welcome such efforts.


Sandra Laielli van Scherpenzeel is Head Cash Banks, CIC Products and Services, UBS Switzerland.


Marco Zannoni is Head Cash and Custody Services, CIC Products and Services, UBS Switzerland.

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