Institutional Onboarding in a Regulatory Storm


Written by: Joe Dunphy

I’m often asked by clients and prJoe Dunphy 2ospects about what I’m seeing in the market in terms of regulatory onboarding and entity data management. And what I see right now is that a regulatory storm is brewing, threatening the very business of investment banking.

Regulatory Overload

Since the implementation of the Patriot Act back in 2001, the financial services industry has undergone a phenomenal amount of change in terms of regulatory standards, but none more unprecedented than those introduced over the past five years. The sheer volume of enhancements to existing requirements (e.g. 4th EU Money Laundering Directive, MiFID II etc.) means that financial institutions can no longer ignore the detailed obligations of previous regulations. This, coupled with the introduction of newer regulations (such as Dodd-Frank, EMIR, MiFID II, FATCA, Common Reporting Standards (CRS), Canadian and APAC OTC derivative regulations) is beginning to have a severe impact on financial services.

Despite commonality in the rules, data and documentation requirements underpinning a number of regulatory frameworks, the challenge of managing regional variations illustrates that financial institutions are not technically or operationally equipped to leverage this (e.g. OTC derivative regulations across US, Europe, Canada and APAC). As a result, institutions are forced to create separate compliance programs to implement processes and solutions ahead of their implementation deadlines. Each stream will have its own dedicated team, point solution, budget and make its own demands on the data management teams to support its regulatory obligations. The prevalence of point solutions in compliance operations incurs two key costs: the ongoing maintenance of multiple IT systems and repeated costs to comply with new regulations to counteract the limitations of existing systems to adapt to future regulatory obligations.

Over the past decade, regulatory fines levied on financial institutions for non-compliance have increased exponentially. A parallel increase in the volume and complexity of regulatory compliance requirements has created a very real risk of incurring significant costs arising from non-compliance.

Impact on Onboarding

The extended compliance process that results from all of this, coupled with all the different and multiple pieces of client data and documentation demanded by each regulation, is affecting the ability of financial institutions to onboard clients in a timely and efficient manner. Each day that a client is not onboarded fully (i.e. not trading) costs the bank the equivalent of a day’s average revenue for that client. When this is applied across the entire client base, the total cost of onboarding delays can be extensive.

Building the Case for Regulatory Client Lifecycle Management

One of the key pieces of advice I offer to all clients is to dispense with a piecemeal approach to managing compliance, data and onboarding and embrace a lifecycle approach that streamlines and connects all three areas into a single, seamless process. There are many benefits to doing this:

  1. Risk Avoidance and Reputation Protection

A client lifecycle management approach that is rules-driven and risk-based can reduce risk and the impact of regulatory fines by managing rules and obligations across multiple regulatory frameworks and throughout the lifetime of a client. Even a very small reduction in the risk or consequence of such fines has a significant cost benefit. For example, a 1% reduction in $1bn settlement is worth $10 million.

  1. Improved Time To Revenue

A client lifecycle management approach that provides a streamlined process, enhances visibility of all stakeholders (across compliance, data, credit, legal, tech and ops) and identify upfront in the process all the data and documentation required to support compliance across a range of regulatory initiatives.

  1. Enhanced Client Experience and Increased Client Retention

In addition to the above, a client lifecycle management approach promotes reusability of all legal entity data and documentation that currently exists across business and functional lines. This speeds up regulatory onboarding, improving overall client experience. Furthermore, enhanced dashboard visibility and task queue management tools for all stakeholders mean that any bottlenecks can be identified and expedited quickly. A better client experience paves the way for more upsell or cross-sell activity in the future.

  1. Centralized Control and Operations; Reduced Headcount

A client lifecycle management approach, supported by the right technology, can help financial institutions to centralize KYC and onboarding efforts into a single team to serve the global business.  Not only does this eliminate siloed operational and compliance processes, but also promotes re-usability of legal entity data and documentation across business lines, creating a stronger single client view. In addition to improvements in controls and greater efficiencies, this approach also results in sizeable cost savings from retiring legacy business line-specific IT systems.

  1. Future Compliance Cost Savings

To ensure future-proofed investment in a client lifecycle management solution, select one that is committed to solving future regulatory challenges and has a carefully designed architecture to facilitate this. Always ask to see the regulatory and product roadmaps to ensure they correspond with the vision of the company and its solutions.

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