Industry eyes utility to standardise client data

The Drive to anIndustry Solution to Standardize Client Data Management

By Matthew Stauffer, CEO, Clarient

Policymakers have been focused on greater transparency acrossthe global financial markets as a way to lower risk and enhance marketstability for more than a decade. From anti-money laundering (AML), torequirements such as Know Your Customer (KYC) and the Foreign Account TaxCompliance Act (FATCA), efforts to bring greater transparency to clients andcounterparties have only increased in the wake of the global financial crisis.

KYC has been mandatory for all banks in the US for sometime, including requirements in the 2001 Patriot Act. In Europe, the EUParliament recently passed the 4th AML Directive and is giving EU member statesat least two years to incorporate the new legislation into their national KYCand AML rules.

All of these efforts are designed to help achieve thisgoal, but they also create greater operational complexity and higher costs forfirms in managing their client documentation and reference data. This problemis exacerbated by a lack of standardization, forcing companies to interpretregulations independently, resulting in slightly different policies andduplicative, inconsistent and time-consuming processes across the industry.

Firms also see this as an area of increasing cost andrisk to them and frustration for their clients. The International Monetary Fundsays incidents involving money laundering, compliance violations of KYCregulations, and other breaches are estimated to cost around 2-5 percent of theworld’s gross domestic product.

According to a recent surveycarried out by Aite Group and sponsored by The DepositoryTrust & Clearing Corporation (DTCC), C-level executives said they are concerned with the recent increase infinancial penalties for non-compliance with sanctions and KYC requirements, andwith record-breaking fines being levied against firms.

To ensureregulations are met, new checks now need to be performed and classificationsneed to be applied to legal entity data. This led more than 80 percent of firmswho participated in the Aite Group survey to say they see regulatory drivers asthe main reason for investment in legal entity data—with global derivativesregulations and tax transparency cited as the greatest operational challenges.

Similarly,the survey found 69 percent of firms indicated data quality and governance arethe greatest legal entity data challenges, while 56 percent put siloed, legacyclient data architecture as the second greatest challenge.

Consistentwith the survey, an analysis from Celent notes that regulatory investigationshave found serious gaps in firms’ existing processes and what is desired from aregulatory perspective.

Because of this, firms are now looking to take a more strategic approach to managingclient data to meet current and new regulatory and risk managementrequirements. 

They are building business cases for holistic client data management—includingthe collection and monitoring of information on clients’ background andtransactions, from on-boarding through trading and settlement. Firmsare also recognizing that client onboarding and client reference data are nolonger strategic differentiators.

The key to meeting datamanagement challenges and compliance burdens lies in bending the cost and riskcurves. To do so, the industry needs an integrated, global client datamanagement utility to streamline interaction between market participants andtheir clients, and deliver the highest level of control, standardization,accuracy and data privacy for client data and documents, including on-boarding,KYC, and the ongoing client lifecycle.

However, currently, a largenumber of firms do not have a single location from which to provide all oftheir counterparties with the requisite legal entity data and documentation neededthroughout the lifecycle of a trade. 

A Utility solution would provide a singleinterface for clients to improve efficiency—rather than dealing with multipleproviders with different requirements, clients can contribute their data anddocumentation once to a single portal for both on-boarding and ongoingremediation.

An industry owned andgoverned client reference data and documentation utility will helpparticipants worldwide to cope with evolving risk management and regulatoryrequirements, while consolidating critical information – and sharing thatinformation with peers and permissioning it out to clients – from one location. 

Furthermore, a Utility solution will provide transparency to clients aboutexactly where they are in the on-boarding process, how their documents areutilized, why they are needed, and how they are stored. Bringing greaterefficiency to these processes leads to greater satisfaction and businessrelationships by speeding up a client’s ability to trade.