Institutional Banks Struggle with Cross-Jurisdictional Compliance and Entity Data

By Fiona McLoughlin, Fenergo

Originally published on TABB Forum

New research claims financial institutions must achieve a global view of clients to ensure cross-border compliance

New research from Fenergo and Aite Group suggests that financial institutions are struggling to manage regulatory compliance and entity data management obligations across multiple jurisdictions.

The research finds that the Anti-Money Laundering Directive IV (AMLD IV) is perceived by capital market firms as being the greatest incoming challenge for onboarding, Know Your Customer (KYC) compliance and legal entity data teams. This is closely followed by global or local derivatives regulations (Dodd-Frank, EMIR, MiFID II) and tax compliance obligations such as FATCA and CRS (Common Reporting Standards). The research goes onto find that these regulations will pose a challenge to firms that do not have a good handle on their client data.

A key part of the multi-jurisdictional challenge is centred on global divergence in regulatory requirements, which are hampering institutions’ abilities to set a global policy for KYC compliance. Instead, they must take into account national differences, which can be challenging due to certain regulators’ extraterritorial approach. Furthermore, data privacy is proving to be a tricky issue with certain countries, even whole continents, being cited as particularly onerous in terms of data access and storage. These include APAC countries such as China, Hong Kong, Indonesia, Malaysia, Singapore, South Korea and Taiwan, along with Russia, Switzerland and the UK.

According to Virginie O’Shea, Senior Analyst with Aite Group, who wrote the research, “Falling foul of a national regulator for sanctions infractions can involve both financial penalties and subsequent reputational damage to the financial institution. Firms must ascertain a global view of their clients to ensure they are collecting and monitoring the required data sets and end documents for compliance purposes”.

In a case study example, the research analyzes the onboarding costs of two similarly sized financial institutions and finds that the automated bank’s costs are 87% less than those of the bank that relies primarily on manual processes.

“Clearly, there is a compelling case to centralize KYC compliance and legal entity data, however, this is exacerbated by the fact that there is no one-size-fits-all approach to client data in every jurisdiction,” adds Joe Dunphy, VP of Product Management with Fenergo. “While there may be no one silver bullet to get this right, there are a number of established technological and operational solutions that can be implemented in tandem to overcome and minimize these cross-border compliance and data challenges.”

Other findings from the research include:

• Half of respondents cite duplicated effort as one of their biggest pain points.
• Most respondents struggle to identify the length of time it takes to onboard the average client.
• Half of the respondent firms have already introduced or are building a central repository for the storage of client documentation.
• While no respondent firms are entirely strategic in their KYC approach, the majority of financial institutions have at least partially centralized their KYC function, which reflects the increased prioritization of the function overall and a design to be more joined up at an enterprise level.

Aite Group’s Virginie O’Shea will join Fenergo’s Joe Dunphy on a webinar at 10am ET / 3pm London time on November 4th, 2015, to discuss Cross-Jurisdictional Regulatory Compliance: A Complex Data Management Web. A copy of the whitepaper is available for all webinar registrants.