kyc - how long can you go?

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© GSMA 2009

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KYC:

Andrew ZerzanMMU Working GroupOctober 2010, Kuala Lumpur

© GSM Association 2008

Overview

What is KYC? Who came up with this stuff? Specific Obligations Relevance to Mobile Money Challenge: Are we asking too much? Solution by the World Bank Interview with a Champion: Maybelle Santos, Smart Money (PH) Tools by MMU: AML Risk Methodology


What is KYC?

KYC = Know Your Customer procedures. – Gathering information on the customer’s identity– Verifying the customer’s data with 3rd party documentation

Core tactic in Anti-Money Laundering (AML)– Helps provider and police detect/track criminal activity– All financial service providers, including in MM must fight money laundering– KYC is one process among many in AML

• Record keeping• Transaction monitoring• Reporting suspicions• And more!

BIG part of what banks do at account opening– Has some overlap with anti-fraud and credit evaluation processes– MNOs too: customer demographic intelligence


Who came up with this stuff?

International standard setters – The Basel Committee and – Financial Action Task Force on money laundering & terrorist financing (FATF)

Powerful lists of rules that regulators need to enforce in each country– Standards are risk-based so you apply more if risk is high, less if risk is low.

Both are based in Europe (France and Switzerland) but standards are global – from New York to New Delhi, everyone implements them

Shaped in the 90s with *major* push after the terrorist attacks in 2001. Countries are assessed for their compliance with the standards

– FATF – World Bank and IMF


Specific Obligations from the Standards

Identification

Customer Name Date and/or place of Birth Residential Address Unique ID number Occupation Phone number Sometimes more

Verification

Passport or National ID card Birth certificate Utility bill to prove address Employee ID card w/ photo ID check via central database And possibly more...

Providers are to identify customers and verify the customer data


Relevance to Mobile Money

Mobile money providers are subject to do KYC processes– Even if partnered with a bank

Account opening Cash-in/out Training of agent retailers to ask the right questions, get the

right documents and record it all

Biggest regulatory barrier to acquiring new customers?


Are we asking too much? The experience of banks

Country Typical # of DocsUK 2Germany 1 to 2Israel 1Japan 1Bangladesh 5 Pakistan 4Cameroon 3Philippines 3Nepal 4

Basic Bank Account: Sample KYC KYC requirements designed by

developed countries

Many in developing countries do no have the required documents.especially government

ID/passport and proof of address

E.g. In Tanzania, 95% have no government ID at all.

However, application of the requirements is often tougher in developing countries!


Are we asking too much? (2)

Huge numbers of people are excluded from the financial system because of cost but also KYC

– Can’t prove address because no utility bills – don’t have electricity!– No ID card – government may not issue except to wealthy for travel on passports– No photo ID – the poorest often do not hold jobs that require employee photo ID

or can afford school where student ID is required– No birth records – many poor are born in unregistered homes, not a hospital with

records KYC is not intended to exclude people from financial services, it is

intended to detect and scare away criminal money launderers Are there ways to reduce criminal risk without reducing access?


Solution through other measures

KYC just one tool to combat crime Are we forgetting the others?

– Account monitoring?– Limits ?

Can these be used to reduce KYC? World Bank research says Yes!

– Criminals want to launder huge amounts of money undetected.– Limits on accounts/transactions/frequency force a criminal to move money

through multiple accounts – Expensive– 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


Solution through other measures

Sample best practice: European Union– Low-risk payment devices can have reduced KYC controls– How to make it low risk?

• Transaction ceilings (EU is €1,000/year max)• Account balance limit (EU is €2,500 max)

Formula for Mobile Money for the Unbanked?

Limits + Account Monitoring = Low Risk and Reduced KYC

With reduced KYC, how low can you go? – Depends on the country: – WB says it is conceivable to eliminate all documentation requirements.– Just easy identification data to record: name


In practice

Interview with Maybelle Santos of Smart (Philippines MNO)


Q&A

GSMA Tool: Mobile Money: Methodology for Assessing Money Laundering and Terrorist Financing Risk – available on MMU Blog website www.mmublog.org

Thank youAndrew Zerzan

[email protected]

http://www.mmublog.org/

mailto:[email protected]


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