Outsourcing Agreement for KYC Services – Key Parameters

With increased regulatory scrutiny and new regulations, organizations are finding it more difficult than ever to manage an efficient & effective Know Your Customer (KYC) process.

For many organizations, KYC obligations can prove to be an expensive and challenging proposition. And it may be tempting for these companies to consider outsourcing purely on financial grounds. However the regulatory obligations of the company must always be given primacy. Simply because the reporting entity itself remains liable for the discharge of its KYC obligations.

But, while selecting a vendor to manage your KYC outsourcing requirements, it is important that the organization looks closer and deeper across critical parameters, to ensure that the outsourcing company (vendor) meets the organization’s (customer’s) statutory obligations, effectively and efficiently.

The Outsourcing Agreement - A Closer Look at Key Parameters

• Articulate clearly the overall scope of the customer-vendor relationship.

• Define the operational parameters, specifying which elements of customer's KYC obligations and related compliance activities will be under the purview of the vendor.

• Similarly, also specify what elements of customer's KYC obligations and related compliance activities, will be retained by the customer.

• Provide a detailed description of the customer identification procedures which are the primary responsibility of the vendor.

• Including critical components such as, collection of regulatory KYC specific information, verification of the KYC information in accordance with the regulatory requirements, etc

• Specifically define formalized service levels, reporting methodologies and the timing of the delivery of reports to the reporting entity.

• Put in place, appropriate indemnities and limitation of liability wording to ensure that the vendor is made contractually liable if it fails to meet the required standards to responsibly manage the customer's KYC obligations.

• Specify how changes to the outsourcing services agreement may be requested and re-priced to meet any changes in regulatory requirements

• The agreement should detail out the modalities with reference to handling of all records and documents and should also specify whether the vendor is to provide or make available for inspection any of the records as required by the customer

• Last but not the least, in the event of termination or expiry of the contract, the agreement should provide for a transition period, to ensure the timely and systematic replacement of the vendor with a proper handover of all records and documents related to the KYC process.

In Summary:

A clear, comprehensive agreement is arguably the most important factor that will determine the success or failure of any KYC outsourcing project. That is why great care and diligence has to be placed, while drafting out the agreement with the vendor. A comprehensive agreement will not only protect the organization’s interests, it will also ensure that the KYC outsourcing company (vendor) fully understands what is required, in terms of scope of work. This is fundamental to any successful outsourcing partnership.

For more information about our services please contact:
Hanno de Vriend
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H.deVriend@amicorp.com

Fernando Cancino
BPO Sales Executive
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