New research undertaken by analyst firm Aite Group and Fenergo finds that capital market firms are actively moving toward a more centralized client onboarding and legal entity data management framework to provide a single point of access to client data and a consolidated view of a client across the enterprise.
The research, which is based on one-to-one interviews with individuals responsible for client data support, client onboarding or know your customer (KYC) compliance at 10 capital market firms, was conducted by Aite Group during Q3 2013.
The findings illustrate that the majority of respondents currently tackle onboarding and KYC activities separately but are planning to consolidate the gathering of data for both functions under a single team to overcome such challenges as:
- A multiplicity of siloed data with many owners but no master and a patchwork of technologies: data stored in different functional silos, with inconsistent formats and reflecting the end requirements of each function makes sharing across the institution particularly difficult to achieve. Some firms are struggling with spreadsheets and workarounds, despite claiming that legal entity data is a high priority. As a result, records are often incomplete or insufficient for compliance purposes, with clients being asked for the same information or documentation repeatedly by different parts of the institution, even those on the same desk.
- Variable onboarding times with an overall lack of lifecycle support: most respondents to the research claim that the overall onboarding process takes "too long," especially for those clients at the complex end of the spectrum. The due diligence checks required for a client classified as "high risk" can extend the onboarding process from hours to months. Institutions also lack the ability to support the lifecycle of an entity on an ongoing basis. This is an area that the majority of respondents feel they should improve.
- Deluge of regulations: The imminent arrival and implementation of regulations such as Dodd-Frank, FATCA, EMIR, MiFID II, Basel III and the 4th EU Money Laundering Directive will impact client onboarding and counterparty data management practices. Respondents are prioritizing Dodd-Frank over other pieces of regulation because it was the first large regulatory agenda item to come into force after the post-crisis G20 agreement. This is followed by FATCA due to the perceived high impact on firms' ongoing maintenance and categorization of client data.
Virginie O'Shea, Senior Analyst with Aite Group and author of the report, says, "Navigating the complex and interconnected relationships between parties active within the financial markets, whether they are clients or counterparties, will never be simple, but the task can be made easier via the introduction and adoption of best practices within legal entity data management and onboarding processes. If systemic risk monitoring can be improved by investment in better data infrastructure for the regulatory community at a global level, logic dictates that investment in firm-level data infrastructures can have a similar impact on risk monitoring and entity data management for individual financial institutions."
According to Marc Murphy, CEO of Fenergo, "The research undertaken by Aite clearly highlights the need for a centralized client onboarding system that can handle global regulatory obligations and ensure all entity data and documentation is consolidated and available in a single client view to support compliance management. ... By automating all of this, financial institutions can tackle the operational and compliance challenges currently facing their institutions and improve time to revenue with timely onboarding, conduct compliance refreshes efficiently based on significant data changes over time and promote upsell and cross-sell opportunities for future revenue generation."
About The Author: Marc Murphy is the co-founder and CEO of Fenergo, global providers of regulatory client onboarding lifecycle management solutions for investment banks and capital market firms. A financial technology specialist with more than 15 years’ experience developing and delivering enterprise software to leading financial institutions, Marc is dedicated to solving issues surrounding client onboarding lifecycle management client– issues that include compliance with a constantly changing and evermore demanding regulatory environment and their impact on entity data management requirements. Marc is a software engineering and MBA graduate of Dublin City University.