By Marc Murphy, CEO of Fenergo
The role of client and counterparty data management is set to assume greater strategic importance in light of all the new regulations (such as FATCA, Dodd-Frank, EMIR, MiFID II) coming on-stream over the coming months. The ability to link all legal entity data and documentation together to achieve a single, cleansed instance of the data that is securely accessible from one location holds huge advantages for compliance and risk management teams, not to mention for other parts of the institution too (e.g. business development / customer onboarding).
Data management – a difficult but vital first step in achieving compliance
Most institutions already generate vast amounts of high-value data and information. However, many executives believe that much of the value is untapped and under-utilized within their institutions. Not only is this untapped, it is fragmented and unconnected impeding institutions’ abilities to gain compliance. Earlier this year, a survey on the readiness of financial institutions for FATCA regulation revealed that 65% of financial institutions are struggling to complete the FATCA client identification process efficiently due to gapped, siloed, semi-structured or unstructured data.
There exists a deep understanding in the industry that client and counterparty data management, in particular, will become a vital piece for complying with each of these new regulations (in addition to existing regulations). Financial institutions understand that there is a real and viable connection between the quality of their client and counterparty data, their ability to comply with existing and evolving regulations and their capacity to onboard new clients or new products for existing clients efficiently and profitably.However, there lacks an overall ability to execute policies, procedures and solutions for a well-designed client and data management system.
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Institutions’ compliance abilities confounded by poor data
Financial institutions are confounded in their ability to comply – not only with FATCA but with a whole host of regulations, all of which depend on high quality, easily accessible legal entity data which is available in the correct, standardised format.
Part of the problem can be attributed to the highly decentralized IT landscapes that characterize the technology makeup of most financial institutions. As a result of organic and acquisitive growth, many financial institutions operate on a patchwork of technologies, systems and data, some but not all of which interface with one another. The result is a proliferation of client data, frequent duplication and significant scope for inconsistencies and inaccuracies. The prevalence of so many siloed, fragmented systems has created pools of disparate unconnected data that is creating problems in terms of data quality, lack of transparency and visibility of legal entities, organizational hierarchies and ultimate beneficial ownership (UBO) structures.
Another part of the problem is the vision of what a client and counterparty data management paradigm should look like. The industry is slightly obsessed with a Holy Grail view of client and counterparty data management — the notion of a single consolidated source of legal entity data that is securely accessible across the institution, providing for an accurate, consistent and transparent view of all clients and counterparties. This is the stuff of fairy tales and nightmares in equal order. Its sheer complexity and size of undertaking may also be the predominant reason why many financial institutions are put off from tackling client and counterparty data quality.
Strive for a single, cleansed ‘instance’ of client and counterparty data – not the Holy Grail
Financial institutions should strive towards achieving a single, cleansed ‘instance’ of client and counterparty data and documentation – but not at the cost of employing rip and replace strategies. The key to achieving high quality client and counterparty data management is in creating intelligent linkages between important data sets and systems lying across the institution. In this way, financial institutions can implement a client and counterparty data management solution that will interface with each of these systems to consolidate the data to a single, logical view of the data from disparate systems. This means that the data does not need to physically move – instead, the client and counterparty data management system acts as a data steward to shepherd the data from the various source systems to provide a logical, single view of the data.
Ultimately, what financial institutions should be looking for is a system that can:
• cater for complex legal structures, capable of handling multiple legal entity roles and associations
• determine ultimate beneficial ownership structures and manage logical groupings of client entities
• cleanse the data and remediate inconsistent data (taking due care with respect to the impact this may have on data semantics or meaning)
• inform other systems of changes that may have been made to the data and feed updates from the data back to the originating systems
• audit changes and trigger review activities for key data elements
• monitor external providers for data updates and action events.
If effective risk management requires a single comprehensive ‘view’ of data, then the answer to this is to take an integrated, holistic approach to client and counterparty data management.The ability to connect data through intelligent linkages to create a more complete and accurate client and counterparty profiles will help the institution to make smarter decisions from both a regulatory and business development perspective. By making this data easily accessible in the correct, standardized format and available on-demand, financial institutions can ensure they are meeting their obligations under all the various regulations (including but not limited to CDD / KYC,FATCA, EMIR, Dodd-Frank, MiFID II).
For more information on this topic, please download Fenergo’s latest whitepaper on Getting to Grips with Client & Counterparty Data Management by visiting http://www.fenergo.com.