What is the next generation technology for onboarding clients at custodians? A migration has begun from portals to onboarding platforms, but some custodians are still mired in a world of email communication, writes Brittany Garland, Executive Director in Operational Risk & Regulatory Compliance at IHS Markit. The article explains that, after years of reluctance to change, custodians are now looking closely at areas of operational inefficiency and demonstrating a willingness to review the benefits of a technological upgrade.

Custodians face formidable implementation challenges. Beyond their sheer size and operational complexity, the need to maintain rigorous regulatory compliance creates additional obstacles that further complicate a technology roll-out. Given these unique circumstances, it is not surprising that global custodians have been reluctant to adopt new technologies, even as other, more nimble market participants have embraced them.

As a result, at a time when distributed ledger technology (DLT), robotic process automation (RPA) and artificial intelligence (AI) are transforming the financial markets, the majority of custodians are still relying on legacy platforms—some of which are now decades old.

However, the status quo is changing rapidly as market pressures mount. As revenues have flattened, it has placed new pressure on internal teams to manage costs through greater efficiency. When the pandemic struck, it created a new sense of urgency by further underscoring how fragile and inflexible these legacy systems are, and how poorly adapted to today’s business realities.

Custodians burdened by legacy technologies face three key challenges: operational inefficiency, poor visibility and elevated risk.

Delays and inefficiency

With communication still conducted primarily by email between the buy-side and custodians, agility is an ongoing challenge. When employees are backlogged or offline, communications sit in their inboxes, leading to onboarding delays and preventing the buy sides from deploying their capital in a timely way.

Similarly, asset managers are losing patience with custodians who issue requests in Excel and PDF formats that take time and effort to complete. While some custodians initially saw information portals as a way to expedite the process, this approach ended up creating extra work for clients who need to remember log-in details and navigate new interfaces and workflows for multiple portals across all of their custodians.

Limited visibility

The reliance on email also impacts visibility for the buy-side. Once the information is sent to the custodian, the custodian’s inbox is no better than a black box. Was the information received? Did it reach the right person? Is the client’s application sitting with KYC? Is there additional information they could send to expedite the process? Which markets are opened? Is there a specific market requirement? Did this need to go to a sub-custodian for setup? At any given point—over a period that can stretch for months—clients have no idea how far they have advanced in the onboarding process or when they are likely to be fully onboarded and ready to trade.

Elevated risk

A single onboarding process can involve hundreds of data points, and every time an investment manager or a member of the onboarding team rekeys that data, there’s a risk of introducing human error. And unless those errors are caught and corrected, the issues can multiply as the data flows into downstream processing.

There are additional risks associated with legacy processes. While custodian banks are placing a renewed emphasis on the security and privacy controls that govern their platforms, email remains a weak point. When the onboarding process is conducted primarily across email channels, it exposes some of the most sensitive client data to unacceptable risk.

Next-generation onboarding technology

As the need to transform the onboarding process becomes more urgent, custodians are evaluating the relative merits of in-house portals and vendor platforms—and recognizing that platforms offer clear advantages.

While portals are more secure than email communications, they are not client-friendly, requiring clients to remember multiple links, passwords and protocols without reducing the effort required on the part of the client to supply the information.

Onboarding platforms, by comparison, not only provide a secure means of exchanging information but offer a host of additional capabilities that benefit both custodians and their clients.

For both sides, the ability to replace a mix of portals, emails, spreadsheets, PDFs and both online and offline processes with a single platform and standardized workflow streamlines the process considerably.

A better client experience

For clients, onboarding platforms replace the time-consuming rekeying of data across multiple custodian engagements with a “one-and-done” process.  Imagine standardizing 70% of onboarding data so that the client only needs to enter it once to supply multiple custodians and the full array of custodial functions, including legal, tax, KYC, and market openings. Platforms also provide clients with full visibility into the status of their account and markets opened on the request at all times.

Significant cost savings

For custodians, an onboarding platform standardizes and automates the workflow and reduces the volume of offline communication, the number of customer touchpoints and the need for manual intervention to obtain and maintain records. This level of efficiency translates into considerable cost savings. Based on data collected, approximately 40 minutes is saved per onboarding—a 300% increase in efficiency. Based on an industry average of 13,200 onboardings per year and an annual salary average of $55,000 for an onboarding analyst, this translates into a savings of at least $165,000 per year for custodians that transition from legacy processes to a platform solution.

Platform adoption accelerates

After years of reluctance to change the status quo, custodians are taking a close look at areas of operational inefficiency and demonstrating a willingness to address them through technological change. As they reconsider their options, onboarding platforms are generating considerable interest as custodians begin to recognize how far they have fallen behind and how much they have to gain by catching up.