It is perhaps the starkest example of the unintended consequences of regulatory reform that it is now so difficult to open a bank account at any UK financial institution, particularly for foreign investors. What began as a challenge to money launderers is now a palpable threat to the City’s position as one of the world’s financial centres.
This century has seen a welcome international consensus on ensuring that the proceeds of crime cannot be rendered invisible simply by being transferred across borders. Banks are now the front line of defence against organised crime, and all financial technology providers must help them stamp out money laundering and criminal financing.
But this is to agree the end and not the means. It is one thing for policymakers to decree that something has to be done; it is another for firms to carry it out.
A prospective customer’s first experience of UK financial services can be daunting, requiring onerous amounts of personal information to verify identity and then the checking of that identity against global registries. Indeed, multiple banks may require the same information at the same time (or they may require something else entirely, as their compliance teams interpret the rules differently). In the worst instances, this can take up to six months. And the fact that physical documents need to be presented increases the risk of interception: addressing one risk (money laundering) creates another (identity theft).
From the institution’s perspective, this process inconveniences a potential customer right at the outset. It is also an extra cost to doing business, and is certain to increase. As organised crime seeks new, smarter ways of legitimising its spoils, more checks will be necessary, more regulation will be imposed, and longer checks will inevitably result. Banks must also check their existing customers: several UK banks have told us they are currently analysing client numbers in the hundreds of thousands.
We know this is a problem faced by other financial centres. Financial Stability Board chairman Mark Carney told G20 finance ministers this month he would investigate why correspondent banking services were reducing worldwide – and how much responsibility the regulatory burden bears for that. A striking example of this has been the withdrawal by some major global banks of their money transfer services in Africa.
In the UK, a recent meeting of banking chiefs and government representatives wrestled with this issue, sharing experiences of long processes and disgruntled customers. I offered a different example – a crowdfunding platform I signed up to recently. I could join online immediately and, within minutes, I had made my first investments. From the customer’s perspective, the gap between conventional banks and new digital disruptors will only grow.
So the ultimate solution for financial firms would be shared facilities in which all institutions participate, sharing Know Your Customer information to produce a secure repository of client records. The client presents the information to a single institution, and all can access it. The data can be screened and the service adapted to accommodate regulatory updates as they happen. And from the policymaker’s perspective, standardising the data allows anti-money laundering resources to be better targeted at catching criminals.
We have launched just such an industry solution, which celebrates a year in operation next month. Other firms have other solutions too. The result should be a solution which ensures robust compliance across the industry, absorbing and implementing regulatory changes while minimising cost to the bank and bother to the customer. Account opening need not be a barrier to business ever again.