There’s a certain irony in a know your client (KYC) process that presents individual investors with the same lengthy questionnaires as large institutions or, having proved their identity once, requires investors to repeat the full process for the next fund. Yet these inefficiencies are symptomatic of the outdated approach to investor KYC prevalent in the private markets today.
As fund managers race to attract capital from a wider pool of investors, the need to comply with a plethora of AML obligations whilst running an efficient fundraising process and offering a hassle-free investor experience is acting as a catalyst for change.
More investors + more regulation = More KYC
Fund managers are raising bigger funds from a wider pool of investors, often with lower minimum commitment sizes. This is increasing the number of investors that must be approved during the fundraising process and in turn prompting fund managers to look at technology-enabled solutions to speed up the process and drive operating efficiencies. However, volume is only part of the problem so technology is only part of the solution…
Private markets investors today range from the largest pension funds to family offices, UHNWIs, individual investors and everything in between. Consequently, undertaking the necessary KYC to identify beneficial ownership structures, establish source of funds / wealth and extract the relevant evidence is more complex.
For fund managers, it generates a lot of information to review which can be time-consuming internally and drive-up costs with service providers. Investors may be frustrated by one-size-fits all documentation and questions which don’t apply to them, leading to a protracted process and a poor experience. Addressing these challenges requires human support alongside the efficiency the right technology can deliver.
As regulators continue to fight the flow of dirty money, an evolving regulatory landscape is adding to the compliance workload. Recent revisions to Cayman’s AML regulations for example, resulted in many Cayman based fund managers going back to their investors for a complete KYC refresh. Our experience is such that approving investor KYC to a universally compliant standard, and then reviewing it as needed in line with the changing regulatory environment makes the process easier. Otherwise, investors into multiple funds are asked to resubmit their KYC by several administrators for the same manager or have to provide the same information for each of their investments.
What’s required to create the right experience and ensure compliance?
1. One-and-done approach
Authenticating investors once to internationally compliant standards drives operational efficiencies whilst improving the investor’s experience. With a single access token to the private markets, investing is quick and easy for investors and reduces the time and cost associated with KYC for fund managers.
2. Reasonable / proportionate requests to the investor
With a wider investor pool, tailoring the investor journey, rather than simply presenting every investor with the same lengthy question set helps to deliver a white glove experience at scale.
3. Managed service, technology with human support
Answering an array of complicated questions can be at best frustrating and a worst a reason not to invest / reinvest. Access to friendly, knowledgeable support improves the overall investor experience. For fund managers, working with a team of experts who understand KYC requirements can act as a valuable sounding board and source of advice when evaluating documentation.
4. Investor access and control
Investors are generally asked to provide the same information multiple times, for each investment they make. Centralising KYC data within a central hub solves this problem. Investors can simply input and upload all the relevant information and then share this in a secure tokenized format at their discretion.
5. A holistic approach to investor information
KYC shouldn’t be seen in isolation, with data points overlapping with other functions including subscription, accreditation and tax reporting. Ensuring this valuable information can be reused and repurposed across the lifecycle of an investment, rather than being lost or poorly maintained in different platforms and formats, benefits managers and investors.
A KYC Clearinghouse for the private markets
Assimilating a growing number of investors into an eco-system built up around large institutions requires a scalable yet robust approach to KYC. We’re delivering this with an investor friendly KYC clearing house. Investors authenticate once, to a globally compliant standard, and then connect and share their pre-approved KYC profile across our trusted hub. Delivering a better experience for fund managers and investors.
