Preface. Happy Reading! AshokVemuri

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2 Preface Hearty greetings from the Infosys Banking & Capital Markets team. On behalf of Infosys, I am delighted to present the first issue of our journal FINsights, a compendium of articles, which bring you insights into the technology powering the financial services business The aim of the journal is to bring you the latest in technology, applied to your business scenarios, which will enable you to win in today s flattening business world. The first issue of FINsights focuses on the wealth management industry; an industry which is grappling with multiple challenges. An increasingly demanding and informed customer base, a challenging compliance environment and the jostling for a customer centric trust based role amongst trust banks, brokerages, insurance companies and family offices make for a very challenging business environment. This journal has a set of articles which look at these and other unique characteristics of the wealth management industry and I hope that they will not only make for enjoyable reading, but also help you in addressing some of your vexing business challenges. I would like to thank all the contributors from Infosys Banking & Capital Markets group and also Alois Pirker from Aite group and Matthew Bienfang from TowerGroup for their insightful articles. I hope you will enjoy reading these articles as much as we have enjoyed putting them together. Please do not hesitate to get in touch with me in case you have any queries or comments. I look forward to your feedback and suggestions in making FINsights a relevant and topical journal. Happy Reading! AshokVemuri SeniorVice President and Head - Banking & Capital Markets Group Infosys Technologies Limited

3 Contents Preface From the Editors Desk 04 Business Challenges and Technology Priorities for Wealth Management Ashok Vemuri 10 Integrated Advisor Workstation A Roadmap Merlyn Mitra Anand Bhushan 19 Case Study: NextGen Client Data Aggregation and Reporting Ashwin Roongta 23 The Role of Open Architecture Emmanuel Chesnais 27 Managed Products - A Strategic Transformation Framework Mak Datar Sanjay Taneja Rajeev Nayar 34 Holistic Wealth Management and the Unified Household Alois Pirker 39 Achieving Client Centricity via Customer Data Integration Sai Kishan Alapati Ashwin Roongta 45 Product Repository: The Foundation for Successful Open Product Architecture Sai Kishan Alapati Anita Stephen 49 Removing Glitches in On-Boarding the Wealthy Muthukumar Krishnan Sujata Banerjee Bharat Rao 55 KYC Compliance - A Strategic Approach Rajesh Menon 59 Analyst Perspectives - Q&A with TowerGroup Matthew Bienfang

4 FINsights Editorial Board From The Editors Desk Balaji Yellavalli Associate Vice President Banking & Capital Markets Group Bhuvaneswari Sundaram Associate Vice President Banking & Capital Markets Group Jonathan Stauber Vice President Banking & Capital Markets Group Lars Skari Practice Leader Banking & Capital Markets Infosys Consulting Manish Jha Engagement Manager Banking & Capital Markets Group Mohit Joshi Chief Executive Officer Infosys Technologies S. De RL De CV The wealth management industry is changing rapidly to meet the evolving needs of its participants. This is one area where true financial services convergence seems to be happening as trust & private banks, brokerages and retirement planning focused companies are all trying to get a bigger slice of the action. Opportunities in new geographies and asset classes are driving a lot of the change in the industry today. These will lead to increased investments in the core processing platforms, as well as the need to tie the various platforms together. The need to bring systems together is very important to financial services firms from a financial planning & advice, customer data, client service and a Business Intelligence (BI) & reporting perspective. Open architecture is another very important consideration that is driving changes to the way the banks service clients. Further, the need to offer clients a wide bouquet of products is driving consolidation of information across the different products and asset classes. Changes in banker and advisor team structures as well as client segmentation for servicing will lead to better cost structures. All of the above have technology implications for banks. Technology will need to be aligned with business to meet the needs of an agile organization that can respond rapidly to changing business circumstances. Technology itself is evolving rapidly and can sometimes drive changes in the organization through the ability to deliver more than what was hitherto considered possible. Information Technology (IT) organizations that are able to plan and react early, and then execute well on these changes are the ones that will succeed in meeting the needs of their business. We are happy that this book addresses some of the biggest business challenges and technology implications addressing wealth management firms today. The debate on some of these topics is very timely. We hope that the journal will inform you and enable you to formulate a response to the many challenges facing our industry. We look forward to your feedback. Happy Reading! Balaji Yellavalli & Manish Jha Editors

5 KYC Compliance - A Strategic Approach As an immediate response to the Patriot Act requirements, most organizations adopted a tactical approach to their Know Your Customer (KYC) programs. Organizations are now looking to adopt a more strategic approach to their KYC systems. Creation of single customer views enabling high reusability of customer information, adoption of standardized client risk scoring models, techniques aimed at moving towards straight through processing ensure a more efficient KYC process and a reduction in the overall account opening timelines. This is yet another example of how an efficient compliance program while meeting regulatory requirements can also serve as a competitive differentiator. Rajesh Menon Senior Principal Infosys Technologies Limited 55

6 World over, Anti Money Laundering (AML) regulation has been intensifying and the risks of non-compliance have become increasingly severe, including regulatory crackdowns, impact on market capitalization and customer perception, and potential financial instability. In the United States, money laundering legislation has gone through several transformations, culminating in the USA Patriot Act, which requires all financial institutions to establish AML programs, with Customer Identification programs for both new and existing customer relationships and transactions monitoring of accounts for suspicious activity. Key challenges in AML KYC compliance As an immediate response to the Patriot Act requirements, most organizations adopted a tactical approach to their KYC programs. While this has helped meet the regulatory deadlines, the efficiency of the current systems and processes are not in line with organizational objectives. Some of the key challenges faced include: Establishing a single view of the customer across different LOB s Manual processes in the current flow which introduce risk and reduce efficiency Difference in the KYC procedures adopted across the organization( especially relevant to organizations with multiple LOB s and a global footprint) Inability to share KYC related information across the organization Ability to achieve Risk based surveillance. Many organizations are now looking to take a more strategic approach to their AML compliance programs and wherever possible leverage synergies with other compliance initiatives within the firm. scheme, is being able to access and correlate a range of data about the client, the client s associates and transactions Having a single view of the customer provides benefits from both a client relationship management perspective and a client risk management perspective, given that a client and associates can hold numerous accounts in different combinations across different parts of a financial institution s business, e.g. mortgage, savings account, trading account, credit card account, etc While organizations can establish new procedures to capture this information going forward, the greater challenge relates to how the existing client data can be leveraged to the extent possible. Creation of global KYC hubs Given the global footprint of today s organizations, firms are increasingly considering the creation of global KYC hubs with data elements that cater to the needs of the various local regulations in addition to the US Patriot act requirements. Increased scalability and flexibility Having reusable data and system components enables better scalability and the flexibility to use those components relevant to a particular business line, geographical location, reporting jurisdiction or compliance report Beyond AML: Overlapping regulations mean that the data, reports and processes implemented for AML can also be used to meet other regulatory requirements, and vice versa. Therefore, reusable data and system components can help to reduce the overall cost for the organization. Strategic Approach to KYC Compliance: The key organizational capabilities that financial institutions need to build into their AML programs in order to successfully meet the current challenges are: Reusability of data and systems Being able to reuse data and systems across different parts of the organization and for different processes. Creation of a Single Customer view The capability to take a holistic view is critical, since the most efficient way to uncover a money laundering Fig 1: Key drivers to strategic KYC compliance 56

7 Centralized Risk Management View Establish a centralized risk management view, across various divisions, systems and processes for effective surveillance, internal information sharing and controls and external reporting. Key drivers are: Centralization of key surveillance functions such as name matching against watch lists, high risk country checks enables improved customer and transaction risk assessment and analytics. Use of centralized reference lists eliminates risks associated with different regions/lob s using different versions of the watchlist data Consistency and coherence in the client risk classification and KYC processes adopted across the organization and improved information sharing across business lines and geographical locations Easy access to history of investigations on existing customers, 314(a) queries. Apart from providing valuable inputs to the alert resolution process or responding to regulatory queries, this also ensures that account opening systems across the firm have access to the same quality of surveillance information Improved correlation capabilities, analytics: Centralized surveillance also enables improved risk analytics, better correlation across activities that span various businesses or types of accounts. Automation of processes, Move towards STP This is aimed at addressing the primary pain point in the current KYC processes at most organizations. Precise definition of documentation requirements, integration with document management systems assists in making the KYC flows straight through with only exceptions being flagged for manual reviews. Automated processes improve efficiency, enabling rapid turnaround and ease of portability, while simultaneously reducing operational risk, both accidental and intentional associated with manual processes. Other Drivers include: Better connectivity: Automated processes reduce silo ization of the organization and reliance on , fax, and courier for collection and transmission of customer data, especially at the customer acceptance stage Avoid potential gaps in data gathering: Automated processes can reduce gaps in data gathering, ensuring that all relevant data is captured at each step and reducing the risk of failng to comply due to incomplete or incorrect data Better information dissemination: Automated processes also enable efficient transmission of tasks and workflows across organizational areas or locations. Fig 2: Client risk scoring engine 57

8 Fig 3: Best practices in KYC implementation Conclusion: While the emphasis over the past couple of years has been to establish a basic surveillance program across the organization, the current emphasis clearly is to increase the efficiency and effectiveness of the current processes. New regulations like section 312 have ensured that the KYC area continues to stay in regulatory focus. With regulators increasingly emphasizing on enterprise wide programs which adopt a risk based approach to surveillance, the process of replace tactical solutions with more long term approaches has been further hastened. Rajesh Menon Senior Principal Infosys Technologies Limited Rajesh is a Senior Principal & Practice Lead with Infosys Banking & Capital Markets practice for compliance solution offerings. He has over 14 years of experience in the Financial Services industry and has been involved in advising several Wall Street firms in various aspects relating to their AML program implementation. 58

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