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KYC Mutualization

Why I Believe KYC Mutualization is Improving Fund Management


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7 minutes

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I know KYC is something no fund manager or admin wants to deal with, so I ask, have you heard of KYC mutualization? If you haven't, it’s worth exploring—this approach simplifies KYC/AML compliance and makes fund operations much more efficient.

I recently attended the first ever Nexus2050 event in Luxembourg where new tech ideas were presented. 

One concept that stood out was KYC mutualization by i-Hub’s team. Based on the information they shared, their platform is currently geared towards the broader financial sector. But I think the impact of this for private markets and fund management is huge. 

Basically, it’s about centralizing and sharing KYC processes so that fund managers, investors, and compliance officers aren’t all doing the same work multiple times. Instead, they can share the results of a single comprehensive KYC check. This can save a ton of time and resources.

According to a 2023 report on KYC data 1, the cost of conducting a single KYC review has increased by 17% since 2022, now averaging $2,598. Additionally, the average global KYC onboarding review process now takes 11 days longer than in 2022, extending the total duration to 121 and 180 days.

Attending this talk and seeing these statistics reminded me of how many funds still struggle with inefficient KYC processes. That’s one of the reasons we built Vestlane—to automate KYC/AML processes, making it easier for funds to conduct thorough due diligence and keep records up-to-date. 

Hearing about KYC mutualization just confirms that there’s a real market need for this and aligns perfectly with what we’ve created. 

KYC Mutualization for Fund Managers and Investors 

What does KYC mutualization mean for your fund? Imagine an investor who allocates the capital across several funds. Usually, they'd have to submit their KYC information to each one separately, which is tedious and prone to errors.

KYC mutualization changes this by creating a central repository for KYC data. Instead of each institution collecting and verifying the same information, they share it through a mutualized system. This way, once an investor's information is verified and stored, multiple fund managers can access it without needing the investor to resubmit everything.

Investor Onboarding

For example, if an investor’s details were verified a few months ago, a new fund manager can simply pull up the already verified information. This makes the onboarding and fund subscription process much smoother and quicker for everyone involved.

Investors have many choices today and are becoming more tech-savvy. Funds need to do everything they can to make the investor experience smooth and hassle-free. 

Advantages of a Shared KYC Verification Platform 

We see the need for an easier KYC process from all the funds we work with. In an interview with Ertan Can, the founder of Multiple Capital and one of our clients at Vestlane, he mentioned the difficulties they had with investor onboarding and KYC processes in Germany.

Ertan Can

I think our job is to invest and select the right targets, not to worry about KYC, AML, CRS, and all the other regulatory requirements. There are so many things to manage, and this is where tech-driven service providers can streamline these processes through automation.

Multiple Capital Logo

Ertan Can

Founder of Multiple Capital

Ertan’s feelings about KYC/AML and other regulatory checks are shared by many funds. This is why a shared KYC verification platform will benefit all by providing: 

Automated Regulatory Compliance

  • Advanced technology platforms will ensure compliance with jurisdiction-specific AML laws.
  • This reduces the risk of non-compliance penalties and enhances the overall credibility and trustworthiness of the fund.

Reduced Time and Effort

  • Instead of repeatedly collecting and verifying the same information from investors, fund managers can access verified KYC data from a centralized repository.
  • Manually processing KYC for multiple investors involves filling out forms, submitting documents, and undergoing multiple checks. With KYC mutualization, all this information is readily available and can be easily imported from the central repository.

Better Investor Onboarding 

  • When new investors join a fund, their data can be quickly accessed and verified, expediting the onboarding process. 
  • Investors also appreciate not having to provide their information multiple times, leading to better relationships and efficient onboarding.

Cost Savings

  • Reducing the need for repeated KYC processes and manual verification lowers operational costs.
  • Funds can allocate resources more effectively, focusing on value-added activities rather than administrative compliance tasks.

Is KYC Mutualization Easy to Implement?

KYC is a complex topic and while KYC mutualization holds great promise, there are some challenges to take note of. Here’s what I've encountered and how we're addressing these issues.

Varying Regulatory Requirements Across Jurisdictions

One significant hurdle is dealing with different regulatory standards across various jurisdictions. For example, Germany, Luxembourg, and Ireland each have unique legal requirements. This makes creating a one-size-fits-all solution for mutualized KYC impossible. 

Advanced technology platforms can help with this by using adaptable verification engines that adjust to the specific requirements of each jurisdiction. So, when a new verification or more stringent checks are needed for a particular region, the system can automatically update to comply with local regulations. It's not always simple, but it eases the process.

Data Security and Privacy

Sharing sensitive personal information across multiple institutions requires robust security measures. This includes storing data on secure servers, implementing encryption protocols, and limiting access to authorized personnel only. 

If your system implements strong encryption protocols and conducts regular security assessments, it will ensure the data remains secure. 

Ongoing Monitoring and Review

Maintaining up-to-date and compliant KYC records requires continuous monitoring and review. This involves regularly updating risk assessments and ensuring any changes in investor profiles are promptly reflected in the KYC data.

Automated systems are a big help here. They can detect discrepancies or suspicious activities, enabling timely interventions. This proactive approach helps keep everything in check and ensures we stay compliant with the latest regulations.

These challenges are real, but they're not big ones. By using advanced technology wisely and maintaining security protocols, we can address these issues.  

Will KYC Mutualization Be Adopted in Private Equity? 

Considering the varying legal standards across jurisdictions, this is a difficult question to answer,. For instance, the 2023 KYC Report 1 found that:

The average time to complete a KYC review has improved in the US, decreasing by 35 days to a total of 82 days. In contrast, KYC reviews in Germany take considerably longer, averaging 106 days to complete.

Living in Germany, I know how lengthy the KYC process can be and the benefits of adopting tech solutions. Additionally, the shortage of talent in the risk and compliance sector drives the need for more efficient, automated processes. With fewer people available to carry out KYC tasks, the necessity for streamlined, automated systems becomes critical. This is where KYC mutualization can make a substantial impact.

Fund managers and compliance officers are always looking for ways to streamline operations, reduce costs, and improve the investor experience. I know there might be hesitations about adopting new technology, but I believe KYC mutualization addresses these needs by offering a more efficient, collaborative approach to compliance.

This is what I see: 

  • For Fund Managers: It simplifies compliance processes, reduces administrative burden and speeds up onboarding and fund subscriptions.
  • For Investors: There is a better onboarding experience, no redundant data entry, and a smoother overall process.
  • For Compliance Officers: The regulatory compliance process is less time consuming with improved accuracy.  

Vestlane’s Answer to KYC Mutualization

As an ex-YPOG associate with 15+ years in private markets, I’ve seen the frustrations and inefficiencies in old-school KYC processes. That's what motivated us to create Vestlane. We wanted to address these inefficiencies and offer a solution that makes KYC mutualization practical and efficient for funds.

Our platform allows fund managers and their teams to collect, store, and review all investor KYC & AML documents in one place. We ensure that everything aligns with the specific AML laws of different jurisdictions, from initial data capture to verification using official documents.

Investor Verification

Vestlane also has a "Five Minute Fund Subscriptions" feature. We knew that if done right, it would solve one of the biggest pain points of Investors and fund managers. 

With this reusable investor wallet, repeat investors can complete their fund subscriptions in just five minutes by reusing all the data already saved on the platform with no additional checks required.  

We developed this feature with the understanding that time is a critical factor in investment decisions. By reducing the time required for fund subscriptions, we wanted to improve the overall investor experience and increase the likelihood of repeat investments. Plus, with over 6,000 LPs already on the platform, fund managers can easily onboard these investors.

Vestlane combines the best parts of a RegTech solution with a dedicated private market relationship management software. We believe that making the process easier for investors ultimately benefits fund managers as well.

From my experience, this shift to automation is a necessary one. It frees up valuable time for fund managers and investors to focus on what really matters. It’s been incredibly satisfying to see how these advancements are making a real difference in the industry, helping us all work more efficiently and effectively.

Funds like AENU, HV Capital, Multiple Capital and over 150 others are using our platform, showing the positive impact of automating KYC and AML processes in the private equity sector.

I encourage all GPs and fund managers to explore the potential of KYC mutualization and consider adopting this approach.

Of course, it's essential to meet the specific needs and challenges of your fund. If you’re curious to see how Vestlane can help streamline your compliance processes and tailor solutions to your unique needs, feel free to book a demo with us. 

Let’s find your perfect solution together.

Sources: 1 - 2023 KYC Report by Fenergo

Frequently Asked Questions

What is KYC mutualization?

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KYC mutualization involves creating a centralized, shared repository for KYC data, allowing multiple institutions to access verified information, reducing redundancy, and improving efficiency.

How does KYC mutualization benefit fund managers?

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It streamlines the onboarding process, reduces manual tasks, ensures compliance with AML laws, and lowers operational costs by eliminating redundant KYC checks.

How does KYC mutualization improve the investor experience?

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Investors avoid repetitive data submissions, leading to a smoother onboarding process and better relationships with fund managers.

What are the challenges of implementing KYC mutualization?

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Varying regulatory requirements across jurisdictions, data security and privacy concerns, and the need for ongoing monitoring and updates are key challenges.

How does technology help in KYC mutualization?

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Advanced technologies like AI, biometric verification, and secure data storage enhance the accuracy, security, and efficiency of KYC processes.