International and local regulations governing Know Your Customer (‘KYC’), Foreign Account Tax Compliance Act (‘FATCA’), EMIR and the Dodd-Frank Wall Street Reform and Consumer Protection Act (‘Dodd-Frank’) continue to evolve in terms of both development and implementation. This presents an operational challenge for financial institutions as they need to decide to either outsource or develop in house systems that access and manage data in order to work with new and existing clients.
Matthew Stauffer is CEO of Clarient Global LLC, which has launched a new industry solution called Clarient Entity Hub to provide a centralised client reference data and document service for industry participants to better cope with the evolving risk management and regulatory requirements.
Stauffer describes the changing public policy landscape affecting institutions. “There is a steady stream of new regulatory requirements from around the globe that increases the importance of accurate and timely client reference data. More and more clients are looking to utility-type solutions that offer single global platforms to enable compliance.”
Compliance and reporting systems have emerged as a major growth industry in the wake of the global financial crisis. Financial institutions soon discovered that vendor solutions were more cost effective solutions than proprietary ones. Numerous competitors offer systems to help institutions to comply with new internal and external client requirements and monitor ongoing compliance. They are primarily designed to increase control, standardisation, and transparency of the collection of validated data and documents while reducing duplication, inconsistency, and time in the client onboarding and maintenance processes.
Increasingly detailed and in-depth demands on verifying client backgrounds cover onboarding of a counterparty in order to set up and facilitate a trading relationship that complies to KYC, FATCA and other regulations. Beyond basic information such as client address details, legal identifiers, certificates of incorporation, it is the bank’s responsibility to screen the information across all regulatory checks, such as Anti-Money Laundering and KYC.
However, changing and even conflicting international and national requirements are driving up compliance and reporting costs while pushing system requirements. Stauffer observes, “There is a steady stream of new regulatory requirements from around the globe that increases the importance of accurate and timely client reference data. More and more clients are looking to utility-type solutions that offer single global platforms to enable compliance."
He sees that optimising costs and benefits is a primary goal. “Solutions need to deliver greater cost and operational efficiencies, enhanced control and standardisation, and the benefits of leveraging best-practice providers for non-revenue generating functions.”
Part of cost optimisation includes adapting to future needs. “Systems need to meet two additional challenges. First, as client information and relationships evolve, the solution must enable users to continually update and share necessary data. Second, bank compliance and KYC policies require refreshes of information on regular basis.”
Stauffer reveals how through improved and cohesive regulatory frameworks governments are making the banking industry play a key role in protecting markets and investors. “Today’s regulatory environment has already cast a bright spotlight on transparency, accuracy and understanding in the client data and documentation process. From KYC to FATCA, EMIR to Dodd-Frank, regulators around the world are demanding that institutions provide a level of client data and relationship oversight that protects the financial markets and discourages actions that could create market risk. We would expect to see more of the same regulations in the years to come.”
In Asia, smaller institutions are particularly affected by the increasing annual burden of compliance costs. Some are still trying to cope with them through manual processes. Stauffer implies that digital platforms are the best way forward. “Manual processes increase the cost and complexity of collecting and managing data in house, and raise the likelihood of mistakes. Automating and leveraging single platform processes can decrease both operational and risk management costs while ensuring better access to and management of data. He added, “The best systems are designed to meet the needs of financial institutions of all sizes, offering scale and efficiencies of particular value to smaller institutions.”