Nordic banks pool resources to fight money laundering

STOCKHOLM, REUTERS: The Nordic region’s six major banks are joining forces to set up a customer checking centre to crack down on money launderers, part of efforts to recover from a scandal that has shaken confidence in the finance industry. 

Danske Bank and Swedbank have lost billions from their market value after becoming embroiled in a money laundering scandal involving their businesses in the Baltics. 

The banks have promised to take steps to rectify shortcomings, such as their planned joint venture with rivals Handelsbanken, Nordea, SEB and DNB to perform common customer checks. 

Regulators and banks see these so-called “know your customer” (KYC) checks as a safeguard against money laundering as the process of verifying the identity of customers, companies and business associates can help banks to spot or monitor suspicious clients. 

“Preventing financial crime is a top priority and a strong driver behind this initiative,” Fredrik Millde, project manager of the venture, known as Nordic KYC Utility, told Reuters. 

The banks have not worked together previously, but the international nature of money laundering and the difficulties preventing it has persuaded them to join forces. 

The new body is expected to create a standardised KYC process for large and midsize Nordic corporate customers across the six banks and Millde expects it to start providing services from 2020 and also sell its services to other banks. 

Five of the six banks first announced the venture in May 2018. Swedbank joined later in the year. The banks have not said how much they are spending on it. 

The finance industry have been under pressure to take action quickly because of criticism by regulators of their anti-money laundering controls. 

Last year, Sweden’s Financial Supervisory Authority said lenders had insufficient customer due diligence measures in place from 2016-2017, indicating there was a lack of information about beneficial owners and inadequate documentation. 

SEB spokesman Laurence Westerlund said people from the founding banks were testing various IT functions and systems for the utility, which is hoping to win European Union antitrust clearance in third quarter. 

The new body could allow the banks to coordinate identity tracking, reduce KYC failures or misidentification risks due to use of different data sources and cut inhouse compliance costs, accounting firm Deloitte said in a paper on the Nordic project and other KYC measures prepared for UK banks. 

Qualitative analysis 

the concept of these utilities is relatively new and there are only a handful in existence. 

Banking secrecy laws prevent banks from disclosing suspicious clients to each other and this has hindered the fight against financial crime, a paper published last September by independent consultancy the Tax Justice Network said. 

But several groups are looking at potential industry-wide initiatives as the regulatory burden to police and report financial crime grows. 

Clipeum, a French project launched by Societe Generale’s employees, with support from the bank, is building a platform where companies and individuals can upload KYC documents and authorise financial institutions to consult the documents. 

“We thought it was smarter to collaborate on this matter instead of compete,” said Eric Le Roux, one of the two co-founders of Clipeum, who also works for Societe Generale. 

Societe Generale has so far convinced Allianz , Banque Postale, BpiFrance, Commerzbank, Credit Agricole, Euler Hermes, Natixis, asset manager Tikehau and UniCredit to join Clipeum. 

The initiative, which will become a joint venture with institutions that are part of it owning stakes, expects to be ready in 2020. 

But such ventures have had varying success, with Singapore’s Monetary Authority having shelved its KYC utility citing unexpectedly high costs. 

Graham Barrow, an anti-financial crime banking expert, said in the past these utilities have not worked well because banks grade clients differently based on their individual risk appetites and also because the utilities did not often do qualitative analysis on KYC data. 

But the Nordic banks’ venture is looking to go one step further. Millde said it was looking at setting up a common “onboarding” process for the six banks. This would allow any of the banks to use the utility to assess whether to take on a customer. 

“There is no provider that can do the full scale of what we want to do and there is isn’t any provider around that has done this cross border (work) in the way that this project has