Know your bank

Over the past few years, one expression that has become synonymous with banking is “know your customer (KYC)”.

Banks, following financial market crises, especially the global phenomenon that threatened financial markets in 2007 adopted a number of strategies to ensure that customers are given the best service they deserve. Perhaps….

Primarily, a KYC charter by banks is supposed to, not only serve the interest of banks but also the interest of clients equally. 

For instance, when a bank conducts a KYC process on a client, by the time it is over, the bank should have had enough information about the individual (company), including their incomes (revenue) and an insight into their lifestyle (operations). 

The advantage to you, the customer, here is that armed with that information the bank should be able to agree with you how much it could lend to you if you had applied for a loan. 

That, in essence, means that when a bank turns you down when you have applied for a loan, it doesn’t mean that it is a bad bank but rather a bank that cares; ensuring that you are only given a credit facility that can be paid off easily by you.

But no. An observation over the years is that KYC has been primarily promoted by banks to prevent money laundering and also to make it difficult for terrorists to use illicit trade and gains to finance terrorism in countries, leaving out, sometimes, the customers’ interest in the process. 

So as soon as counter-terrorism financing measures found its way into the statute books of the managers of the global financial architecture, l sensed a problem for genuine customers as far as KYC was concerned.

Banks now followed the “statutes”, looking clearly through the lens like some forensic experts to discern what could be termed suspicious transactions to be reported to the financial intelligence units or the anti-fraud units of various countries, whereas the same process could be used to promote financial wellbeing for the individual.

In the process, not only have genuine businessmen often become victims to bad “forensic tests” but also rent-seeking banking “professionals” have connived with the real criminals to dodge the process. Progress has certainly been made, l agree, but there are still some very complex situations that need to be addressed.

In fact, bank credit committees alone should not be allowed to perform the credit risk assessment of clients and thus an integrated KYC plus a credit risk assessment process could help protect the sanctity of the financial sector. 

Not only that, as a KYC information that feeds through the corporate-wide loop of information sharing in a financial institution can also help the institution to deal with enterprise-wide risk exposure ultimately - from market, operational to credit risks mitigation.

Hopefully, an effective and efficient credit reference bureaux (what has been introduced lately) that is fit for the purpose should help address some of these shortfalls so that customers, the real nucleus of a banking system, will also benefit.

Now, the purpose of this week’s article, after such an elaborate explanation on KYC, is to consider whether the argument can be extended further for customers to be able to create their own “charter” by developing an eye for a “Know Your Bank (KYB)” process.

This week’s report that the regulator, Bank of Ghana (BoG), has ordered a microfinance institution to close down for non-compliance with provisions of the licence granted it was not interesting reading. Images of aggrieved customers at the bank, following the regulator’s orders was grim.

According to a BOG notice, purported to have been sent to all financial institutions in the country and the general public, the “Bank of Ghana, in accordance with the provisions of the Banking Act 2004 (Act 673) as amended, Section 65 (1) wishes to inform all banks, non-bank financial institutions (NBFIs) and the general public of the placement of a 90-day moratorium on the operations of DKM Diamond Microfinance Company Limited with effect from Monday, May 11, 2015”.

The reported response by the company in question was what was rather dangerous, in the scheme of things: “We are a genuine financial institution registered under the Banking Act of Ghana and under no circumstance should we carry out any activity which is contrary to the approved regulations by the BOG”, a signed statement by the company emphasised.

The question, however, is this: Can a registered and fully authorised financial institution in the country commit no wrong after registration? Certainly not. 

It can commit even worse crimes under the tightest of supervisions as the world’s financial ombudsman of some repute-the US Security and Exchange Commission- could not stop the crimes of fully regulated companies trading on exchanges in the US, leading to a contagion effect that threatened global markets.

If, as reported, the Financial Intelligence Centre (FIC) has also moved in on this case, demanding the company to furnish it with some data on its dealings, then the allegations against DKM by the BoG is serious and, therefore, should not be taken lightly.

As customers of some of these institutions, it is important that you also make the effort to ensure that you have as much information about your bank, much in the same way that they would want to know a lot about you. 

Don’t treat their long years in business as given years of success; it could be years of massive losses and misdirection! 

Look for the right signals before you do business with a financial institution and when in doubt, check with the BoG.

botabil@gmail.com