A horizontal lifecycle approach to regulatory onboarding

Over the last few months alone, we’ve witnessed:

• the finalisation of FATCA, Dodd-Frank, EMIR, MiFID II rules,
• the proposal for an enhancement of existing money laundering rules in the form of the 4th EU Money Laundering Directive,
• the completion of Customer Due Diligence (CDD) rules by FinCEN in the US, and
• the UK’s Financial Conduct Authority (FCA) commencement of a thematic review of the UK’s laws on AML systems and controls (expected later this year).

On top of this, over the last year or so, we’ve seen high profile, punitive fines being levied against industry household financial institutions for past failures and non-compliance with existing regulations as a head-on-a-stick way to remind financial institutions that compliance is king in financial services.

All of these regulations will have a sizeable impact on the data, documentation, classifications, checks and screenings that need to be done for all new and existing clients, making the process of client onboarding far more challenging.

As I’ve blogged about before, with so many regulations being proposed and enacted, some financial institutions are resorting to implementing separate compliance programmes, policies and processes in an effort to be in with half a chance of meeting regulatory deadlines on time. However, the fundamental problem with this approach is that it, inevitably, leads to spiralling compliance costs for the funding of separate budgets, teams, technology and data requirements. Furthermore, it piles additional pressure on central resources like IT and data management, with each compliance stream making their own regulation-specific demands on them. This results in duplication of effort and requests, adding further cost to the overall cost of compliance. It also guarantees the continued existence of functionally-divorced systems and data siloes, preventing financial institutions from re-using data and documentation held through various repositories around the institution.  

With regulatory deadlines coming hard and fast at financial institutions, some with converging implementation dates, compliance teams need to think holistically about various regulations at the same time. It’s not about prioritisation anymore, it’s about managing compliance implementations simultaneously. This is not an easy task given the typically siloed walls that exist between functional divisions right across the institution, resulting in disjointed systems and pools of unconnected client and counterparty data lying across the organisation. 

So how are financial institutions supposed to manage and comply in this chaotic environment?

I am a firm believer of taking a horizontal, lifecycle approach to regulatory onboarding. In very simple terms, this involves marrying together the client and counterparty data management, compliance and client onboarding activities from across the institution and managing these in a cohesive, integrated manner on one platform.

It means tearing down the siloed walls that exist between functional divisions and untapping the value already held within the institution by enabling the re-usability of documentation and data held in various repositories across the bank.

It’s about creating a strong, accurate, holistic single data master of the client and/or counterparty that acts as one gateway through which all data flows.

It comprises data cleansing, remediation and mapping of new data elements that support new regulatory classification structures. This will help to create higher quality data that, when entered into a compliance engine, will ultimately determine the regulatory route a client / counterparty needs to travel in an effort to gain compliance with all relevant regulatory obligations.

Finally, it’s all about onboarding the client as efficiently and compliantly as possible to generate revenues immediately and, through the delivery of a high service level, encourage clients to onboard new, higher value products over time.

Taking a lifecycle approach to regulatory onboarding involves the automation of continual data and documentation updates, which can trigger new compliance events (for sufficiently material changes) and the re-usability of data and documentation for faster onboarding for future cross-sell and upsell opportunities.

Ultimately, what it means is that financial institutions can effectively and efficiently manage all regulatory demands without losing sight of the business of banking!