With comments ranging from comparisons of the Fed's Rick Small with Hitler and Stalin to acknowledgment that KYC is important, the Fed has been barraged with hundreds of letters in response to proposed Know Your Customer regulations. The other agencies issuing virtually identical proposals - OCC, FDIC, and OTS - have all received their fair share of complaints from the institutions they regulate and their customers.
The majority of the outrage comes from consumers and consumer rights organizations that object to Big Brother putting his nose where they feel it does not belong. At the same time, some banks aren't convinced another set of regulations is necessary, particularly since their exposure to potential illegal activities may be very limited, but all acknowledge that knowing your customer is part of prudent banking - and may believe they already do what the regulators are now requesting.
With a comment response deadline of March 8 and numerous visits with bankers under their belts, the agencies will be designing the final regulation and guidelines to be issued later this year. If adopted, the new KYC rule is expected to become effective by April 2000. The Journal spoke with credit and compliance officers of KeyCorp, Wells Fargo Bank, Bank One Kentucky, and Amsouth Bank to hear their thoughts on this issue.
"If you look only at the media, especially certain Web sites, you would think KYC is the worst thing that could possibly happen to both the public and the banks," says William E. Pierce, SVP for Regulatory Compliance at KeyCorp in Cleveland, Ohio. "That simply is not true."
Marty Lloyd is compliance officer at Amsouth Bank, a $20 billion bank with 6,500 employees and fewer than 300 branches in four states. "I think the regulators are going to be very reasonable with this," she says. "Somebody could pick up this reg and say, 'They're going to come down hard on private banking,' but I think the Fed, which is our regulator, is saying that it depends on your institution." Amsouth Bank will spend a good deal of time assessing its own business lines to determine where the greatest risks are. "For example," says Lloyd, "our private banking clients are probably our best-monitored, best-known accounts. They are not our biggest risk area as might be the case at a much larger bank - they're our smallest risk area. We are going to look throughout our institution and assess our risk by account type and customer type."
Not only that, banks can expect some useful feedback from information coming in from the banks, says Rick Small, assistant director of the Division of Banking Supervision and Regulation for the Fed. "I expect there to be feedback from a number of banks as to which KYC specifics work and which do not. I hope that the KYC guidance we issue will include information on what's working for other banks." This cannot occur, of course, until after the comment period, because first it's necessary to know exactly what the regulation is going to look like. The Fed has been collecting information from its examination staff and as Small and others speak with banking groups. Small hopes to incorporate 20 or 30 different successful methods banks currently use to identify their customers.
Pierce says he's not aware of any other regulation, with the possible exception of the new Community Reinvest Act reg, for which the regulators have knocked themselves out getting feedback. "My staff and I have been in three meetings with Rick Small and I know he has been criss-crossing the country, as well as discussing this with trade associations and others. He's been very open and I think he has a pretty good handle on the areas causing misunderstandings or problems." Pierce says that KeyCorp is taking the proposal very seriously and he and his compliance team are working to help bank executives separate the hype from reality.
"In our world, it's just about Job 1 to know who …