Know Your Customer (KYC) is not just a set of regulations to comply with. With the right data, processes, and technology, it can be a valuable tool to understand our customers better and thus be able to support them throughout their challenges, while at the same time shielding business owners from unnecessary risk. We wanted to delve a little deeper into this issue and so hosted a webinar with leading experts on the regulatory environment and financial crime to delve into the topic. Our panel of experts discussed what organizations need to do to de-risk their operations and how they can set themselves up for future success.
Our expert panel was made up of Graham Barrow, Director and Presenter of the Dark Money Files podcast, Viljar Kähari, Co-founder of PWC Legal Estonia and Gandolfo Iacono, CEO of LexisNexis Russia CIS & Eastern Europe.
Chaired by our Director of Global Markets, Brynja Baldursdóttir, the webinar drew in over 500 registrants and 300 attendees from 33 different countries, all eager to better understand the opportunities compliance technologies can bring to a business.
Brynja began the session by explaining that KYC is not just a box ticking exercise, it is a necessity for better business in 2021. The key thing to consider is that KYC is all about trust.
To begin, Graham contextualized the important role that KYC plays in protecting the financial system from ‘dark money’. Dark money, “which is any money that enters the financial system for which you cannot show for certain where it comes from”, has real victims that do not show up on paper. Dark money must come at a cost to somebody. Better KYC processes are not just protecting customers and businesses, it also protects taxpayers in corrupt countries and potential victims of money laundering all over the world.
Part of the issue with stopping or at least resisting the flow of dark money according to Viljar Kähari, is that “banks interpret KYC requirements very differently. It seems that client onboarding and monitoring processes are sometimes much more important than actually understanding a client’s business and monitoring transactions.” This alludes to what Graham believes the larger problem to be, that, “there really is a big difference between banks being compliant in terms of the anti-financial crime requirements, and stopping dirty money entering the system.”
Understand your customer
To shift from just being compliant with regulations to stopping financial crime with compliance we must progress from Knowing Your Customer to ‘Understanding Your Customer’ (UYC), a phrase Graham coined during the discussion. He commented that this is “because if people are intent on laundering money, they will provide beautiful documentation to get into the financial institution, but that documentation will need to be lies.” If we can go beyond knowing our customer to understanding them, then we can see through even the best lies. “Because if you force people and criminals to lie when they create the accounts documentation, you then have good documentation to monitor the downstream transactions. And that is the control. It is getting them to say in detail what they want you to hear and then monitor in detail what they actually do. It’s the difference between those two things, which is your control.”
Data, data, data
Our panelists agreed that the bridge between KYC and ‘UYC’ is data. Graham commented that “the ability to take KYC data, and feed it into your transaction monitoring system intelligently, is probably the single most important thing we can do. But we must sell one idea to all our customers. The idea that KYC is not an ordeal we have to put the customer through. It is the most important thing we can do to protect them.”
There are barriers that compliance teams need to break through to get to this next level of KYC. Gandolfo says, “the issue is that we see compliance or AML as a cost centre”. Compliance departments need to be seen as an asset hat needs serious data and software,” and many managers are not aware of this. Managers need to see the value that effective compliance brings in potential fines avoided. Viljar concurred, “compliance departments are overloaded. They do not have the resources they need; they do not have access to different databases.”
The perception of compliance needs to change for organizations to allocate the resources teams need to resist the flow of ‘dark money’. Viljar stated that “changing the mindset of compliance officers from an inspector to a business advisor is more important and necessary today. Because we cannot assume that all clients are criminals unless they can prove otherwise. It is the common understanding now because you need to provide a massive amount of information and documentation to show that you are getting your money legally. And that is why I’m thinking that the compliance function must become more proactive at finding practical solutions rather than just saying ‘that this work cannot be done.’”
To make this organizational culture shift it will take time, but our panel agreed that a realistic alternative is to outsource KYC and AML, provided there is not a “homogenization of risk appetite”. Viljar noted that when a company does not have access to a public register, “there are several service providers who can easily help to solve this problem. Just the banks and other regulated financial institutions must trust service providers and user services.”
Change of mindset
Summarizing the event Brynja rounded up the discussion by pointing out that the most important takeaway from the webinar is that as an industry, we need to start changing our mindset from knowing our customer, to understanding our customer. We need to vastly improve international cooperation in terms of legislation and regulation, and we can refine processes around KYC in terms of increasing shared services, using data and technology in a smarter manner which ultimately should make sure that we as businesses make our processes reflect our appetite for risk. It is time to make the switch from simply knowing, to understanding our customers.
This virtual event was a huge success from our perspective which gathered an incredibly engaged audience. Thank you so much for all your brilliant questions – our panel enjoyed the lively debate!
If you would like to re-watch the session, or if you were unable to attend, please use this link to learn about the benefits KYC compliance can bring to your business.
Creditinfo is investing in IBCH to improve its credit information sharing system
KYIV, UKRAINE, May 24, 2021 – Creditinfo Group, the leading global credit information and fintech services provider, today announces that it has become the sole owner of Ukraine’s International Bureau of Credit Histories (IBCH). Creditinfo aims to improve access to financial services for Ukrainians and support financial institutions with a full suite of best-in-class credit risk management tools.
Established in 2006, IBCH is one of three main credit bureaus in Ukraine. It offers a portfolio of products and solutions for credit risk management, expanding business opportunities, preventing fraud risks and NPL management improvement. Also, IBCH gives access to credit histories for individuals and legal entities.
“This investment shows Creditinfo’s renewed commitment to both the IBCH and Ukrainian financial market overall,” commented Seth Marks, Managing Director, Creditinfo Central & Eastern Europe. “We have been a partner of IBCH since launching in Ukraine. We have also established our credentials in more than 30 countries, also in the region, opening bureaus in Georgia, Kazakhstan, Kyrgyzstan and the Baltics. We hope that this new investment and our wealth of international experience will help us further entrench IBCH and the Creditinfo brand in the Ukrainian financial services space as we partner with lenders to drive financial access through the use of best practices in credit risk management and data protection. Ukraine is an ever-evolving and developing market with considerable growth potential. We are eager to play a role in aiding this growth.”
Kateryna Danylchencko, IBCH General Manager, added, “this is a new important step forward for IBCH. Our team is energised by the opportunity to be a part of Creditinfo, and we hope to utilise the company’s expertise to assist us in the introduction of new products and services.”
Established in 1997 and headquartered in Reykjavík, Iceland, Creditinfo is a provider of credit information and risk management solutions worldwide. As one of the fastest-growing companies in its field, Creditinfo facilitates access to finance, through intelligent information, software and analytics solutions.
With more than over 30 credit bureaus running today, Creditinfo has the most considerable global presence in the field of credit risk management, with a significantly greater footprint than competitors. For decades it has provided business information, risk management and credit bureau solutions to some of the largest, lenders, governments and central banks globally to increase financial inclusion and generate economic growth by allowing credit access for SMEs and individuals.
For more information, please visit www.creditinfo.com
Group Marketing Director
Creditinfo’s bankruptcy survey revealed that the amount of bankruptcies grew last year for the first time in ten years and increased 26% compared to 2019 in Estonia.
Last time the number of bankruptcies grew significantly was due to the global economic crisis in 2008 and 2009 when the growth measured up to 150% in annual comparison. There was marginal growth (+2.4%) in 2017, but this was a shift by eight companies. In 2020, the number of bankrupt companies increased from previous year’s 271 to 341 ( 26%). The share of companies that have gone bankrupt is at 0.15% of all registered companies.
“The amount of bankruptcies remained at a low level in 2020, but there was still a trend of significant growth in the number of bankruptcies that we have not seen since the beginning of the previous great economic crisis. It may be assumed that this was partly due to the effects of the corona crisis, but since the bankruptcy process is long-term, we will probably see the greater effect here next year,“ explained Creditinfo Estonia’s analyst Helen Tinkus.
There was also growth in the last decade’s continuous downtrend of the number of asset-less companies, where bankruptcy rates dropped due to the absence of assets. During 2010-2019 the number of dropped bankruptcies decreased on average by 14% yearly. In 2020, the number of asset-less companies increased by 49%.
“This might have been caused by the fact that the economic environment had become insecure because of the corona crisis. More business plans failed completely and the companies were unable to gather any assets at all before the insolvency situation developed. At the same time, there were also some asset-less companies that showed substantial turnover numbers in the years prior to the bankruptcy,“ Tinkus added.
The areas with the highest rate of bankruptcy are still hospitality and catering, manufacturing industry and construction. The rate of bankruptcy was above the average in wholesale and retail as well.
“There have been no changes in the fields of activity with the highest bankruptcy rate in the recent years. But the share of bankrupt companies in the hospitality and catering sector grew faster than in others, both compared to other fields of activity and to previous periods. These are the fields that was influenced the most by the corona crisis and the restrictions. Based on the payment defaults and wage compensations statistics, we can predict a greater effect of the crisis on the companies operating in the field also in the coming years,“ Tinkus stated.
Creditinfo Estonia Ltd has conducted bankruptcy surveys about Estonian companies since 2000. During the 20 years the number of bankruptcies has both increased and decreased in waves, reaching the peak level in 2009 as a result of the global economic crisis. In 2011 the number of bankruptcies fell by a remarkable 40%, in 2012 by 20%. Bankruptcies have decreased steadily also in the following years, reaching the pre-crisis low level in 2015.
Rain Resmeldt Uusen, Head of Marketing – Creditinfo Estonia
Creditinfo Lietuva collects, stores and analyses information about the creditworthiness of businesses and individuals, assesses their credit history and assigns appropriate credit ratings. To meet the highest data security standards, the bureau introduced an ISO certified information security management system in 2014.
The system complies with the requirements of ISO/IEC 27001:2013 and is constantly reviewed, revised and subject to annual audits. On 26 April 2021, “Creditinfo Lietuva” successfully passed the periodical annual audit performed by “Bureau Veritas”.
The audit assessed the entire organization against 22 compliance criteria, including the competence and data security awareness of leadership and staff, information security management, business management procedures, sharing of responsibilities, management of documents, planning and control, activity monitoring and analysis, internal audit procedures, ability to swiftly resolve issues, continuous improvement, etc.
The audit also assessed the competence of employees of all levels, security of the information systems, IT and support, compliance of the information analysis and sales departments with the ISO requirements. The physical security and business policies of Creditinfo Lietuva were addressed by the audit as well.
The 2021 audit concluded that the information security management system of Creditinfo Lietuva meets the highest standards and can be considered a good practice. Data security in the company is given the highest priority, internal and external risks are constantly monitored and analyzed, and the company is prepared to address the risks in a professional manner.
According to Creditinfo Lietuva, the textile industry of Lithuania is among the business areas which was hit by the pandemic extremely hard. In some sectors of the textile industry, the revenue is 30% below where it was before the pandemic, clothing manufacturers lost 11.7% and leather companies 31% of their employees. 17% of clothes making companies and 15% of textile manufacturers have been given high or very high bankruptcy risk scores.
“Textile industry, an extremely important business sector in Lithuania, is facing unprecedented challenges all over the world. Together with services, tourism and catering, the textile business has been suffering from a severe hit the consequences of which will persist for many more months to come”, says Aurimas Kačinskas, General Manager at Creditinfo Lietuva. “Unfortunately, there is little room for optimism in the immediate future of the sector, which means we‘ll have to keep business partners of the sector under a magnifying glass for quite some time”.
Further Downfall by 30% is Forecast if Global Lockdown Continues
A few days ago, “Coface” published its latest analysis of the global economy, where the economic forecast was downgraded only for the Central and Eastern Europe textile sector, while the textile industry itself, like global textile, was moved from high risk to the very high risk category. It means that no recovery or return to the pre-covid level is expected in textile industry until the end of the year. According to “Coface”, in the best-case scenario the decline of the textile industry will come to a halt at the end of the year, provided there are no new lockdowns introduced globally. If the countries worldwide continue imposing movement and social contact restrictions, this year will only see a further shrinking of the textile industry down to 30 percent of its volume in 2020, the year of hardship.
According to Statistic Department of Lithuania, the textile industry of Lithuania is made up of companies engaged in clothes making, textile manufacturing, leather processing and leather manufacturing businesses.
Employment at Leather Companies Plunged by 31 per-cent
According to Creditinfo, 949 companies reported textile-related activities as their core business last spring; there are 942 of such companies this year. Although the difference is slim, the true impact of the pandemic is revealed by the employment statistics. For instance, over the period of one year the number of employees at the clothes making companies dropped from 15,142 to 13,364 (11.7 per cent), and from 684 down to 472 (31 percent) at leather processing and leather manufacturing companies
Analysis conducted by Creditinfo revealed the revenue of textile manufacturing companies shrunk by 3.1 percent (from EUR 470.4 million to 455.8 million) compared with their revenue in 2019. The same trend was observed at the cloth making companies, where the revenue dropped by 19.9 percent from EUR 457.1 million down to 365.9 million, and leather processing and leather manufacturing companies with revenue going down by 30.2 percent from EUR 23.1 million to 16.2 million.
“We noticed that small and medium sized textile companies suffered the most, while large companies still had orders to fulfil”, says the CEO of the credit bureau. “Yet it is rather likely that the further shrinking textile market this year will reduce the number of orders for the large companies, too. It means that even more employees will be forced out of their jobs in the sector”.
1/6th of Companies with High and Very High-Risk Scores
According to the credit bureau, about 17% of cloth making companies and 15% of textile manufacturers currently are ranked as high bankruptcy risk companies.
“Earlier, the textile business was growing for quite some time, and so did the creditworthiness of the companies. Currently, the risk scores of textile companies brought them in line with problem sectors such as construction and transport”, Kačinskas explains.
Moreover, experts of the credit bureau noted, that only 25 percent of the companies in the textile industry submitted their financial statements for 2020. “It seems that only companies applying for subsidies or other pandemic-related reliefs submitted their financial statements as they were required to get the subsidies”, says Kačinskas. “We call upon all companies to declare their financial situation in time, as it will enable all market players to make more objective assessment of the textile sector, and help business partners to make more accurate decisions”.
For more information, please contact:
Aurimas Kačinskas, General Manager, Creditinfo Lietuva
For many, due diligence checks and Know Your Customer (KYC) processes are simply seen as compliance requirements imposed by regulators that can add friction and cost to their business, but that is a flawed assessment. In fact, KYC has many advantages for business and can act as the differentiator needed for your business to survive and thrive in the increasingly digital, global economy.
In a market full of uncertainty, true understanding is a valuable commodity. Today, many organizations have been forced to re-evaluate what they need to do to ensure not just their longevity, but their continued success. Knowing the pressures that customers and prospects face, being able to support them through their challenges and shield your own business from unnecessary risk is key.
However, there are still too many treating KYC compliance like a tick box exercise, and not the competitive point of difference it can be.
The potential and possibilities that arise from a well-conceived and resourced compliance organization is remarkable. Whether it’s through the use of better data, fusing local data with global intelligence, or understanding the emerging threats from organized, financial criminal groups and working to counter them, good compliance can help businesses avoid the most damaging risks and seize the most lucrative opportunities.
At Creditinfo, we’ve long understood this. Our customers know that the combination of our decision analytics technology and access to a wide range of traditional and alternative data provides them with the tools they need to better understand their customers and take the appropriate steps to capitalize on the opportunities on their doorstep.
These opportunities are only ever going to increase, and those that become complacent on compliance, will begin to fall behind.
Tomorrow, on May 11th, we are hosting a webinar with leading experts on the regulatory environment and financial crime to delve into just this. Our panel of experts will discuss what organizations need to do to de-risk their operations and how they can set themselves up for future success.
This virtual panel will include speakers from PwC, Lexis Nexis, and The Dark Money Files, and will cover compliance technology, regulatory trends, and the ever-evolving threat landscape, to help you understand what you need to do to protect your organization from financial crime, and the opportunities better KYC processes can bring to your business.
To hear more about the benefits better KYC compliance could create for your business, register your attendance today.
You can also follow along on Twitter with the hashtag #CreditinfoKYC.
Historically, every time that there was a crisis, lessons were learnt. The Authorities, be they political or financial, rushed in to introduce and implement corrective regulations and legislation to either block legislative loop-holes or correct oversights that permitted players in their respective fields, but especially in the financial sector, to take advantage of same for their own individual benefit with little regard for the rest.
The lessons and improvements implemented by regulators and financial institutions since the from the last financial have stood the banks and financial services in stronger position when facing the financial crisis which is following the health crisis. Banks are reacting by using data insights through monitoring and early warning solutions to address problem debts before they escalate.
A few years later, with the introduction of strict regulatory measures, the requisite confidence and stability in financial markets was gradually established. Central banks are now closely monitoring these, issuing directives on a regular basis to further stabilize and impose tighter controls to prevent a repeat. Regulating banks is difficult, unfortunately, and there is always the risk that a similar crisis raises its head again.
This is a very simplistic reference to the Financial Crisis of 2007-2009, which forced changes and tighter controls on the global financial markets.
Changing the scenario to the present day, COVID-19 pandemic, although different, in that it is more of a medical beast, has impacted the global population and, as a result, the global economy has turned out to be messier than the Financial Crisis of 2007-09. Individuals who own and control both global economic and non-economic practices are the victims this time. Through its secondary effects, the pandemic, may also be considered as a financial crisis. The policies put in place to control and ultimately curtail the pandemic, have so far had limited success in curbing the spread, but they did manage to create havoc with the global economies. Some industries, such as food distribution, benefited from rising demand, while others, such as telecommunications and pharmaceuticals, were unaffected and continued their operations, although maybe at a slower pace but certain sectors took a heavy beating.
The airline, travel, hospitality, leisure, and entertainment sectors have been hit the hardest with dramatic reduction in activity and with closures being the norm.
The airline industry, on its own, according to a KMPG report, estimate a revenue loss worth USD200 billion in 2020 and to prevent a total collapse, government assistance, worth USD200 billion is being considered.
However, the airline industry is just the beginning. One has also to consider other businesses that are directly and indirectly linked. Millions of individuals are affected – loss of jobs or reduced hours of work translate into less consumer spending, higher risks, defaults and similar. At this point, the Great Depression comes to mind, but the true impact of the pandemic will be gauged towards the end of 2021 and throughout 2022.
In these turbulent times, with losses expecting to continue until 2022 and possible, even beyond, risk management is crucial and extremely critical for all industry players. Despite, corporate bankruptcies still being rather low, further pandemic waves with the relative lockdown and restrictive policies would deplete remaining cash reserves and eventually increase bankruptcies.
The new normal will set in at different speeds as lockdowns are lifted, but this will also depend on the recession in each country and on the effect of restrictions on demand and supply. Recoveries may vary by sectors, but severe economic necessities may induce Governments to loosen their restrictive policies in an effort to kick-start certain activities, in particular, the airline industry and travel, which indirectly would also re-activate the hospitality, leisure and entertainment sectors.
It is now more critical than ever that financial institutions and other market participants, recognize the value of using tools like a Credit Bureau. These credit bureaux deliver insights in the data such as credit scoring and financial transparency, that can identify riskier projects/individuals/businesses, and thus prevent defaults to the benefit of the lender and national stability, in general.
Now is the time to gain a better understanding of our local marketplace, and the speed in which information changes. We have to comprehend how our local marketplace will perform in the post COVID era. It is better to be informed than to continue blindly as the future is changing and businesses and individuals must adjust and act accordingly.
In the immediate future, credit risk assessments, will be based on real-time monitoring of sectoral and sub-sectoral situations, making historical data in previous known environments less important – COVID has taught us a tough lesson
Credit Reporting Manager, Creditinfo Malta.