Currently, it takes too long to open a business bank account on the Isle of Man. This is not the mark of an open and dynamic economy which enables entrepreneurs to start businesses.
A big part of the delays here are the extraordinary volume of forms that need to be completed. These delays mean that other jurisdictions are much more attractive to start new businesses and create good new jobs.
In addition to the delays to starting new businesses (which cause some businesses to avoid starting entirely) there are huge on-going costs of these rules. Big businesses now have massive compliance departments, and the high cost of such departments are passed along to customers and investors in the form of higher fees and lower profits.
So when we as a community pay such high costs, you would expect something to show for it. How many criminals have been stopped by these rules? Is there less financial crime as a result of these rules? Are less terrorist projects being financed?
It should – of course – be possible to reduce much of the costs of these rules, while retaining the few benefits. For example, financial transactions which are being made to/from terrorist nations can be stopped, without stopping small local transactions. Some transactions – even without reams of KYC documentation – can be permitted, because they are obviously low risk transactions.
In an earlier career, I spent a lot of time trying to identify fraudsters online. A key part of that effort was to find attributes that allowed me and my team to differentiate between honest customers and fraudulent customers. Some attributes were shared between honest and fraudulent customers. Some attributes were far more common amongst honest customers. Some attributes were far more common amongst fraudulent customers. The good security measures differentiated between the two: they were easy for honest customers to do, and hard for fraudulent customers to do.
Thus, I do not understand how providing a print out of a Manx Utilities electronic bill does anything to differentiate me from a fraudulent customer. A fraudulent customer is able to take a template of such a document, and change the details as they wish very easily.
It is not a technically difficult to alter an electronic bill and print out the edited version. It will continue to be easy to counterfeit utility bills because Manx Utilities, like every other utilities company in the western world, is not in the business of producing verifiable bills that are resistent to counterfeiting. They could – of course – embed a URL (or QR code) on every bill which allowed someone with the bill to view the “real” bill online. This would be a useful tool in reducing the risk of counterfeit utilities bills, because someone could type the URL from the bill, and verify that the real bill (stored online, on the utilities company server) matched the printed bill being provided to verify an address.
But we don’t do simple stuff like that, so the result is that fraudulent customers are just as able to provide utility bills as honest customers.
It should not surprise us, then, that our KYC and AML rules are very ineffective at actually stopping crime.
Research suggests that for every £1 of criminal money stopped by KYC rules, it costs law-abiding people £100 in various costs. This is a terrible return-on-investment, and is a strong indicator that we can – and should! – improve this area of regulation.
Further, there is a credible chance that requiring such high levels of KYC actually increases some forms of crime – because storing lots of customer data is a more attractive target for hackers and similar crimes.
Finally, these KYC rules also impose excessive burdens on certain people in our community: new migrants and those people who do not have a history of well-documented living arrangements. Those people are already in difficult circumstances, and, in the case of people who do not have well-documented living arrangements, are more likely to suffer various cognition problems. Those people suffer twice from the complexity of the bureacracy, since they suffer from the complexity and also from not having good documentation.
Meanwhile, the far-off regulators face little of the costs of these rules. They are likely to be well-paid, well-educated, and in more stable living arrangements. It is easy for them to comply. These rules need to be fixed.
30 August 2023 update: Updated the title to make it clearer that this post related to KYC and AML rules.