On 28 February 2024, the Financial Markets Standards Board (FMSB) published for consultation a transparency draft of a standard for client onboarding documentation and processes. The draft identifies current inefficiencies within the UK’s regulatory requirements and guidance for ‘Know Your Client’ (KYC) due diligence. The shortcomings highlighted include:

  • The guidance rarely specifies precise data points to be populated or parameters for evidence which firms may accept to conduct satisfactory due diligence. As a result, firms have adopted similar but varying requirements for different categories of client.
  • With regards to onboarding, it can take multiple months to set up client accounts, during which time the prospective client is unable to transact with the proposed service provider and is potentially missing out on business opportunities.
  • Many solutions trialled, for example the provision of a complete outsourced KYC function and data and document repositories for commonly required documents, have simply reflected onboarding firms’ individual requirements rather than seeking to harmonise them. They have not been able to demonstrate the provenance of the documentation stored to the satisfaction of onboarding firms.

To remedy the inefficiencies, the FMSB suggests:

  • Government endorsed digital identity for businesses and legal persons could significantly improve the availability and credibility of client data by providing a definitive ‘golden source’ for certain data points and / or an immutable chain of transmission.

Purpose of the standard

The proposed standard takes forward the standardisation recommendation from the Post Trade Task Force, with particular emphasis on the aim to “establish standardised document requirements and data definitions and agreed mapping of data to KYC regulatory requirements for all client types, as standards need to be issued on the precise form of documents that would be acceptable”.

As such, in writing the proposed Standard, consideration has been given to both the authoritativeness and availability of sources and evidence types in order to streamline the client experience while ensuring the integrity of the KYC process.

To further improve the client experience, the proposed standard also:

  • Provides an idealised workflow for the population and verification of data points.
  • Formalises principles of credibility and sourcing and creates a framework for benchmarking.
  • Is modular in design.
  • Suggests key operational data to be collected at the point of onboarding.
  • Is granular to enable integration with future work (e.g. expanding jurisdictional scope and/or digitisation).

A roundtable will take place on 11 March 2024 to answer any questions on the proposed standard and encourage participation in the consultation. The deadline for responding to the consultation is 3 May 2024.