Managing Regulatory Data is Key to Faster Compliance and Client Onboarding
Investment banks need to get back to the business of banking – onboarding new clients, upselling and cross-selling – albeit more efficiently, compliantly and profitably than ever before. The question is – do they have the data, operational and technological capabilities to do this?
It’s been a calamitous few years for investment banking. Between profit slumps, job cuts, unprecedented fines for non-compliance and the incessant onslaught of regulatory pressures, it’s been one controversial crises after another. So much so that financial institutions have been busily retrenching and reducing the size and importance of their investment banking divisions.
Investment banks need to get back to the business of banking. That means onboarding new clients, upselling and cross-selling more efficiently, compliantly and profitably than ever before. The question is – do investment banks have the data, operational and technological leverage to do this?
Let’s take client onboarding as an example.
It can take anything up to 34 weeks to onboard a new institutional client. For every day that a client is not onboarded, it costs the equivalent of a full day’s trade – so if the client is trading $1 million per day, then it quickly accrues to over $200 million over the 34 week duration. Extrapolate this then across the entire new client base and the numbers soon become very significant.
So what exactly takes institutional client onboarding so long?
The disjointed nature of client onboarding obviously doesn’t help. When onboarding an institutional client, approvals are needed (usually simultaneously and sequentially) from a range of other business functions such as legal, compliance, credit, and technology and operations. A lack of visibility over the entire process means that the client onboarding application can very often succumb to infinite delays. This can be easily fixed by providing key parties to the onboarding process with dashboards that highlight bottlenecks and enable corrective action to take place.
More worrying is the current torrent of regulations, which is taking a toll on the ability of investment banks to onboard clients quickly and efficiently. It’s not surprising that compliance and legal obligations absorb most of the time for client onboarding due to the amount of data and documents (estimated between five and 100 documents) that need to be collected from clients. If the client to be onboarded is an existing client of another part of the bank, the chances are that the vast majority of these documents have been captured already for other regulatory purposes e.g. anti-money laundering (AML) or know your customer (KYC) compliance.
The problem is that, while many financial institutions harbor ambitions of creating a master data file, the majority struggle to tear down the existing data and process silos that stand in their way of a truly centralized data platform. An inability to achieve a single client view means that new clients can be contacted up to ten times during the onboarding process to submit data and documents they’ve already submitted for other purposes.
The ability to re-use data and documentation already captured under previous initiatives is a key requirement for introducing greater efficiencies and effectiveness to investment banking operations. For example, up to 80% of the data and documentation required to evidence ownership, address, tax identification etc. for the Foreign Account Tax Compliance Act (FATCA) or global OTC derivative rules (like Dodd-Frank, EMIR, MiFID, Canadian and APAC OTC derivatives) has likely been captured already under existing standard AML and KYC obligations. By centralizing these attributes, financial institutions need only focus on the collection of the outstanding 20% of data and documents required.
Many institutions are moving beyond the concept of client onboarding towards a client lifecycle management approach. This involves tracking, monitoring and ensuring compliance throughout the lifetime of the client by being capable of responding to new data. This new data can be event triggered (e.g. new director, new address) or data received as part of a scheduled or ad-hoc compliance review and may trigger a compliance response if materially significant. It can be used to enhance the existing client record, a golden source of which should be shared throughout the institution.
The benefits of reducing the time it takes to achieve compliance with various regulatory frameworks extends beyond faster onboarding and improving overall time to revenue. It also has a really positive impact on client experience. A client’s onboarding experience has a strong impact on the lifetime value of that client, with inefficient client onboarding being the primary cause of lost deals for many banks. By expediting compliance and onboarding times, financial institutions can get back to the business of onboarding more satisfied clients and pave the foundations for future upsell and cross-sell opportunities.