CLIENT ON-BOARDING: THE SOLUTION LANDSCAPE

Transcription

1 CLIENT ON-BOARDING: THE SOLUTION LANDSCAPE AN OVERVIEW OF SOLUTIONS CURRENTLY AVAILABLE FOR CLIENT ON-BOARDING By Jim Roth, Thomson Reuters Client On-Boarding Statement of intent The evolving financial landscape is becoming ever more complex and regulated, particularly with regard to multi-party relationships. Regulations around Know your Customer (KYC) and client on-boarding (COB) are becoming more onerous and organizations face the threat of hefty fines and more importantly often severe reputational damage if they fail in their KYC due diligence. COB has become a critical function and a plethora of solutions, such as the managed service approach, has evolved. This paper will provide an overview of the different solutions and the pain points they address. The views and opinions expressed in this paper are those of the author and do not necessarily reflect the official policy or position of Thomson Reuters.

2 CONTENTS RE-DEFINING CLIENT ON-BOARDING... 3 COMPLEXITY THE NAME OF THE GAME THE DRIVER DETERMINES THE DESTINATION... 3 REGULATORY PRESSURE... 3 DATA MANAGEMENT & MAINTENANCE...3 TRANSPARENCY & OPERATIONAL COSTS... 3 THE SOLUTION LANDSCAPE: DRILLING DOWN... 4 THE DATA PRIORITY: DATA PROVIDERS... 4 REFERENCE DATA HUB & DATA MANAGEMENT SOFTWARE... 4 DATA SCRUBBING SERVICES... 4 DOCUMENT MANAGEMENT SOFTWARE & DOCUMENT REPOSITORIES... 5 SYSTEM INTEGRATORS... 5 THE PROCESS PRIORITY: BPM/WORKFLOW ENGINE SOFTWARE... 5 CONSULTING SERVICE PROVIDERS... 6 THE HOLISTIC PRIORITY: TECHNOLOGY... 6 MANAGED SERVICES... 6 A PACKAGED COMBINATION OF MANAGED SERVICES, AND TECHNOLOGY AND DATA CONTENT... 7 BACK TO THE FUTURE... 7 HOW CAN THOMSON REUTERS HELP? CLIENT ON-BOARDING: THE SOLUTION LANDSCAPE MAY 2015

3 RE-DEFINING CLIENT ON-BOARDING The evolving financial landscape is becoming ever more complex and regulated, particularly with regard to multi-party relationships. Regulations around Know your Customer (KYC) and client on-boarding (COB) are becoming more onerous and organizations face the threat of hefty fines and more importantly often severe reputational damage if they fail in their KYC due diligence. COB has become a critical function and a plethora of solutions, such as the managed service approach, has evolved. First, let s take a step backwards. COB is a far broader concept than the name implies it is actually entity on-boarding (EOB), where the entity encompasses multiple parties, including but not limited to clients, owners, directors, suppliers, agents and brokers. It is also necessary to include maintenance and the one-time remediation needed to bring existing entity profiles into this new paradigm (and often into compliance). So EOB should be redefined as entity on-boarding and maintenance (EOBM). COMPLEXITY THE NAME OF THE GAME EOBM is a complex and multi-faceted concept, often involving diverse regions, multiple businesses and different operations, all of which are supported by multiple technologies and systems. This complicated web of process, policy, data and technology renders the revision of EOBM one of the most significant enterprisewide initiatives that financial institutions have ever undertaken. It is important to point out that these complexities extend to small and large organizations alike. Whilst smaller organizations, by definition, are juggling fewer human resources, fewer systems and processes and generally have less fragmentation, they are nonetheless governed by the same regulatory requirements as their larger counterparties. By extension, their solution needs are almost identical to those of larger firms. THE DRIVER DETERMINES THE DESTINATION The initial driver or catalyst for an EOBM project is pivotal in determining the ultimate solution adopted by the firm. All too often, a singlefaceted solution is implemented in response to a specific driver one that cannot adequately address a multi-faceted challenge. Some of the most common drivers include: Regulatory pressure The threat of enforcement action - including hefty fines and the resultant reputational damage - often leads to organizations revisiting their EOBM processes from a compliance point of view. This frequently focuses their attention on either point solutions for KYC and/or Anti Money Laundering (AML) transaction monitoring systems. It may also push them towards document management solutions, as historically KYC audit points were viewed as documentation failures. Heavier regulatory scrutiny can also lead organizations to engage consulting companies. Further, the added dilemma of non-compliance within the existing client base is often the catalyst for engaging in a massive data scrubbing project. Data Management & Maintenance Whilst trying to create the desired single view of a client across regions, business lines and products, organizations often tend towards believing that their fundamental challenge is data. This, in turn, leads them to data management solutions, often starting with building or buying a central reference data hub to allow them to consolidate all of their data in one place. Transparency & Operational Costs A lack of transparency from a business process standpoint as well as operational cost concerns can steer companies towards business process management (BPM) solutions, which usually take the form of a workflow technology platform paired with either a BPM consulting company or in-house process re-engineering teams. 3 CLIENT ON-BOARDING: THE SOLUTION LANDSCAPE MAY 2015

4 THE SOLUTION LANDSCAPE: DRILLING DOWN So the catalyst for an EOBM project significantly influences which solution is ultimately chosen, but what solutions are available to organizations? Let s take a look at three different priorities that may push organizations towards specific solution types. The Data Priority: Where an organization fundamentally perceives that its challenge is data - often incomplete, inaccurate, inconsistent and difficult to retrieve and collate it will tend towards a data solution. These include: Data Providers These providers offer a range of data and data-related services, such as sanctions list and PEP screening, credit reports, enhanced due diligence research reports, etc. They are typically data aggregators, using both software and manpower to source data from numerous underlying sources. Some maintain a central cross-industry database of client records and redistribute data in a subscription model to multiple financial institutions, using in-house research teams and updates coming from subscribing institutions to maintain their data. The value of data providers is self-evident, since institutions use this data to make risk decisions. In recent years the delivery model for integrating this data into EOBM processes has been improving along with advances in software and technology. On the flipside, data providers often offer quality data more cost effectively than institutions could obtain individually, but only for a subset of business segments. This means that large organizations may need to employ multiple providers to address the full range of their business activities. Reference Data Hub & Data Management Software The trend in recent years has been for organizations to implement various programs around enterprise data management (EDM). These are often IT-led programs to create effective chains of data collection, processing, storage and distribution across the enterprise. More and more, these programs are focusing on client data and, as a result, providers of data management software tools have focused on this area as well. Their tools are generally software platforms with customizable data entry forms, inbound and outbound data record workflows and a reference data hub a database that can be used to centralize the data storage. Some offer a baseline client data model, including sets of common fields found on client records, as a core part of the offering to make the solution less generic and more focused. There is much value in these solutions, since quality data can only be leveraged in an organization if it is managed and distributed effectively. One challenge is that these solutions tend to specialize in the general storage, validation and distribution of data and are not heavily oriented towards the capture of data from front and middle office business users, whose needs seen as build requirements for the tools - are usually more complicated than originally envisaged at the time of solution selection. They are a valuable component of the solution, but leave a gap in the data capture process. In the absence of data providers to validate every element of a client record behind the scenes and on an ongoing basis, this disconnect from business users can make this repository difficult to maintain. Data Scrubbing Services These are typically service providers using research capabilities around the KYC space to perform scrubbing of large sets of client data. They are used to supplement existing data processing teams already tasked with the onboarding of new clients, but unable to manage the massive task of simultaneously cleaning up the backlog of data records. The value in these is simply that they can provide manpower where it s needed to get the data cleaned as quickly as possible. 4 CLIENT ON-BOARDING: THE SOLUTION LANDSCAPE MAY 2015

5 The challenge is that this data cleanup exercise is only as good as the set of data providers and updated policy rule sets that are currently in use. If no software and processes are in place to maintain the data, then after the scrubbing exercise it will quickly become stale. Document Management Software & Document Repositories These are typically large generalist software providers offering products to store large quantities of documentation and support workflows for collecting, approving, scanning and controlling documents. Institutions that have fallen foul of the regulator for documentation failures will often have a kneejerk reaction and engage this type of solution. The value in these solutions is that they are scalable and can handle large volumes of documentation. They act as the document equivalent to the central reference data repository. The challenge, however, is that the technology for imaging, storing and retrieving documents is useful, but the workflows and index fields are often document-centric as opposed to optimized for the complex structures required for client data. If these index fields are not properly maintained as clients change structures, merge, etc., this will quickly lead to messy document repositories. A solution for document management should indeed be implemented as part of an overall EOBM solution, but it must be linked to a client data and workflow backbone designed for the complexity of EOBM. System Integrators System integrators create integration points between all of the various systems that house or process client data. The focus tends to be on integration points between a central client repository or EOBM tool and subscribing downstream systems, such as trading systems. They are often created by a combination of internal and external system integration teams. Integration allows a specific client record to be managed across systems, in particular by tying together the identifiers for that record across systems. Downstream actions are controlled through the on-boarding system, as opposed to directly in the downstream systems. There is, however, a negative - these client records rarely have a clean one-to-one correlation and this approach doesn t address the (often massive) duplication of effort across systems. These integrations are therefore an important part of the overall EOBM data process, but must be created in the context of a broader data management solution. The Process Priority: If we take a step backwards, it becomes apparent that poor processes (for acquiring and maintaining data) are often the cause of an organization having poor quality data in the first place. Re-engineering processes is therefore another common focus point leading organizations towards the following solutions: BPM/Workflow Engine Software These are generalist platform tools that allow organizations to create, manage and integrate workflow processes of any type. There are two main applications of workflow platforms for EOBM. The first is to manage the EOBM business workflow itself, in particular the multiple parallel processes that have to occur to allow multiple teams to work on the onboarding at the same time. The second is more technology-centered and used to track the progression of data records across the various systems. These products can be heavily customized to fit the exact needs of an organization. Workflow management is a necessary component of any EOBM solution, and for organizations for which the primary focus is on process, workflow products are a natural choice. The challenge is that EOBM workflows need to be designed specifically to balance and cater for both the process-centric requirements of work flowing between departments as well as 5 CLIENT ON-BOARDING: THE SOLUTION LANDSCAPE MAY 2015

6 the data-centric requirements of the complex client structures these workflows manage. In addition, the design and implementation of the workflows need to be synchronized with all of the other business and operations areas of the overall EOBM solution being created. The difficulty involved in achieving this balance and harmonizing this design is often greatly underestimated. Consulting Service Providers These providers can play various roles in the EOBM process, ranging from scrubbing existing client data to advising on compliance program standardization through business process re-engineering. The value of working with third party consultants is well-known. EOBM reengineering programs, particularly in large institutions, tend to be significant efforts that strain the capacity of even well-staffed operations and project teams. One particular challenge is to ensure consistency of design. These projects can often take years to complete and this has implications for both cost and expectations. Moreover, turnover and rotation of resources, both within the institution and at the consulting provider, can make consistency difficult to achieve. The Holistic Priority: A holistic priority, as the name suggests, addresses data, process, documentation and policies to deliver a complete solution. At the heart of the holistic solution is the entity data model the data structures and information that need to be collected in order to address the data demands of both the business and the regulator. The entity data model must be sufficiently robust to satisfy many stakeholders. Stored data must be warehoused in a repository, which will need to be integrated with other relevant systems across the enterprise to distribute that data in a controlled and consistent fashion. Business processes and compliance policies need to be re-engineered to acquire and maintain this data, and workflow and rules-based policy software is needed to manage and track these processes and enforce the regulatory requirements. Data providers need to be plugged into these processes and systems to validate and enrich the data acquisition, and to trigger updates to the information over time. Channels through which holistic solutions can be delivered: Technology There are a handful of vendors offering purpose-built software for client on-boarding. These solutions offer a combination of all of the core components needed to adequately solve the EOBM challenge, including data, document, workflow and policy rules management; and data warehouse and integration capabilities. This type of software is the closest there is to an out of the box solution and typically offers a significant level of toolkit flexibility. Managed Services Managed service models such as Thomson Reuters Org ID enable financial institutions (FIs) to outsource a significant part of the COB process to a third party, by enabling quick and easy sharing of client identity documents via a secure web-based portal. Screened and validated KYC profiles are stored on the portal and - importantly - are monitored and reviewed on an ongoing basis. FIs are then able to access records for each end-client. The end-client has full visibility and control over who can access and view strictly confidential information and documents are held according to strict data and information security requirements. These solutions aim to improve the endclient experience and accelerate the ability to do business. Banks can effectively selfserve, checking the portal when necessary. End-clients are offered an efficient way to manage their documents. Information can simultaneously be shared with multiple banks and information is securely stored and disseminated. 6 CLIENT ON-BOARDING: THE SOLUTION LANDSCAPE MAY 2015

7 Managed Service solutions remove a significant portion of the software solution complexity and manpower training from the organization. They centralize data maintenance for cost efficiency - by one estimate internal KYC costs can be reduced by 30-40% - and consistency of data quality. They also establish an industry community approach to policy and data standards, offering FIs a simplified approach to KYC and a valuable safeguard against potential reputational damage. A Packaged Combination of Managed Services, and Technology and Data Content This approach, the newest offering in the market, combines the data quality and costsaving capabilities of managed services with the data delivery infrastructure capabilities of off-the-shelf software, allowing organizations to implement an EOBM solution quickly and cost-effectively. Data feeds are pre-integrated to enrich the information available to all participants throughout the on-boarding process and to allow for trigger-driven data maintenance. This strategy also promotes a community-based approach to enhancing the quality of data, to interacting with regulators, and to establishing market standards for EOBM processes, policies and software. BACK TO THE FUTURE It is clear that the complexity of EOBM extends to complexity within the solution space. In essence, organizations need to focus on one important point: that a multi-faceted challenge requires a multi-faceted solution. In practice, however, organizations tend to focus on resolving their immediate pain points. This almost always results in a narrowly scoped solution that is unable to adequately address a systemic issue. To further complicate the process, orchestrating an enterprise-wide program, which often spans years and encompasses management changes, priority shifts, budget constraints and other issues, often leads to difficulties in maintaining consistency. The future, for successful providers, lies in offering complete solutions instead of partial ones. All of the solutions outlined in this paper are necessary in one form or other, but the successful solution incorporates all of the elements discussed. For organizations currently experiencing pain points, investing in a holistic solution such as managed services, will solve these, but moreover, will create opportunities for long-term improvement, transforming the challenge of EOBM from a risk-driven to a valuedriven proposition. HOW CAN THOMSON REUTERS HELP? Thomson Reuters provides a holistic approach to client on-boarding, enabling end-to-end enterprise KYC and entity on-boarding and maintenance; from on-boarding initiation at front office level, through to back office KYC and AML checks, regulatory compliance, FATCA tax compliance and account operations. Thomson Reuters for Client On-Boarding streamlines processes and improves your customer s experience, empowering you with the required platform, data and reporting tools. With the launch of a managed service, Thomson Reuters Org ID, in Q1 of 2014, Thomson Reuters has extended the frontiers in KYC management and customer due diligence to build sustainable trust and empower business opportunities between financial institutions and their clients. 7 CLIENT ON-BOARDING: THE SOLUTION LANDSCAPE MAY 2015

8 KYC PAIN POINTS Both banks and end-clients face a multitude of challenges surrounding KYC, but many banks do not view KYC from a client perspective at all. They simply view it as a bank problem and this is damaging bank/client relationships. Clients are routinely faced with time consuming requests for information as part of the onboarding process. Requirements differ by bank and by geography and there is no clear standard, leading to duplication of effort and long delays. One statistic reveals that clients may wait up to 34 weeks before they are fully on-boarded with a bank and each week of delay costs both the client and their bank. On top of this, clients have very valid concerns over the security of their confidential information. All this leads to frustration and inefficiency. Bank pain points are well documented and include fines; operational, staff and IT costs; lost revenue due to customer attrition; and the threat of often severe reputational damage if they fail in their KYC due diligence. Recent headlines illustrate this point, with bank fines hitting record highs of just under US$9 billion, restrictions being placed on business transactions and heightened regulatory supervision. Managed Service solutions are alleviating many of these pain points by streamlining the KYC due-diligence process and moving from a many-to-many to a one-to-many model: One industry standard for the provision and validation of a legal entity s identity The security of sensitive information is guaranteed Delays are minimized The duplication of effort is virtually eliminated 8 CLIENT ON-BOARDING: THE SOLUTION LANDSCAPE MAY 2015

9 RISK MANAGEMENT SOLUTIONS FROM THOMSON REUTERS Risk Management Solutions bring together trusted regulatory, customer and pricing data, intuitive software and expert insight and services an unrivaled combination in the industry that empowers professionals and enterprises to confidently anticipate and act on risks and make smarter decisions that accelerate business performance. For more information, visit risk.thomsonreuters.com 2015 Thomson Reuters GRC02808/515