Automatic Exchange of Information and the competitive advantages of good Client Data Management

By Silvan Arpagaus – Manager, Iris Grewe – Partner, Ronald Frey – Partner, at BearingPoint Financial institutions are exposed to a greater regulatory pressure on the part of various national and international authorities, especially from Europe and the USA. The Foreign Account Tax Compliance Act (FATCA), the Automatic Exchange of Information (AEoI), MiFID II or …

August 17, 2017

By Silvan Arpagaus – Manager, Iris Grewe – Partner, Ronald Frey – Partner, at BearingPoint

Financial institutions are exposed to a greater regulatory pressure on the part of various national and international authorities, especially from Europe and the USA. The Foreign Account Tax Compliance Act (FATCA), the Automatic Exchange of Information (AEoI), MiFID II or the Dodd-Frank-Act (DFA) are just some examples of regulations that a bank has to comply with. All these regulations have one thing in common: They lead to substantial challenges concerning conformity and completeness of client data.

Historically, the management of client data primarily served operational purposes, since related extensive regulatory requirements were largely inexistent. From the regulatory point of view the importance of client data has increased substantially in recent years.

The AEoI means that financial institutions have to convey information about client to the relevant national tax authority. This includes name, address, TIN (Tax Identification Number), date and place of birth, account number, account balance, gross interest earnings, gross dividends and other gross income.

For financial institutions, the implementation of AEoI will entail costs of many millions for human resources as well as for IT. Patrick Odier, President of the Swiss Banking Association, puts costs at 500 to 800 million francs in Switzerland alone. In addition an outflow of client funds is expected.

Financial institutions, confronted with these new regulations, are giving high priority to addressing these regulatory changes and resolving the relics of the past. However, the new way of handling client data and the investment in regulatory change should not be seen only as a potential danger and a matter of expense, but also as an opportunity. If the handling of client data is viewed holistically across the different regulations, the quality, accessibility and consistency can be improved which leads to new opportunities.

With the offering of tailored products based on the targeted use of structured client data, it is possible to increase client satisfaction. Clients usually appreciate services that well suit their requirements without having to specifically approach the financial services provider about them. Such a use of client data can foster numerous opportunities to up-sell and/or cross-sell.

How does the AEoI affect Financial Institutions?

The extended reporting duties relating to client groups and the type of information to be reported, as well as the financial institutions affected by the standard, lead to substantial modifications along the whole value chain, starting with uniform KYC processes. In addition to requiring a greater awareness for quality with the relationship managers, the reporting duties also require more efficient processes.

Considering the large number of clients that have to be classified, it may be worthwhile for a globally operating financial institution to cover the responsibility for the KYC processes or the reasonableness test via a central, internal shared service model. Such a central unit would facilitate the implementation of future and potentially stricter requirements, and to increase processing efficiency.

A possible solution for this problem can be a meta data approach, where only the key data elements and references are stored centrally. Such an approach facilitates the subsequent integration of further countries participating in the standard and provides a flexible adaptation option concerning possible further reporting duties. Due to the usually very narrow implementation and test windows provided by the regulatory authorities, a combined solution approach for different regulatory initiatives is critical.

Consequently, KYC processes can be redesigned in such a way that they simultaneously meet the requirements of the EMIR regulation, the Dodd-Frank-Act, new AML regulations as well as MiFID II, thereby generating synergies in processing.

Although financial institutions are confronted with substantial expenditures in connection with the AEoI, the CRS implementation can contribute to an increased centralization and improved maintenance of client data.

How Client Data Management can help to obtain Competitive Advantage?

Given the current situation in which financial institutions have to deal with a wave of regulations, a large portion of budgets for projects will be used for implementation of regulatory requirements. This means that often only a small part of the budget can be used for projects to achieving growth, increasing efficiency or providing for product and service innovations. Due to this, it can very well make sense to use part of the budget that has to be used for the implementation of regulatory requirements (e.g. AEoI), for the improvement of associated client data related processes and the corresponding IT infrastructure.

Data quality increased in this way has two positive effects: Investments in the quality of client data simplify current and future regulatory projects

The improvement of client data quality can simplify the electronic indicia searches for existing clients and in addition enhance AEoI reporting quality. Well-prepared client data management also makes it easier to implement future regulatory projects that require access to corresponding client data. This also applies, if particular investigation and further research is required by the authorities, in order to clarify specific cases in connection with individual clients and/or client groups. Furthermore, the high degree of client data transparency is usually helpful in order to avoid accidental disclosures of client data which can lead to civil actions.

Improved client data quality makes it possible to adapt the strategy, marketing, product development and sales based on the client in an improved and more individual way

The key to this is that both, the financial institution as well as the relationship manager have access to more and improved information about the client and its needs. The statement by Google CEO Eric Schmidt that the search engine always knows what the client wants before he knows it himself’ shows that companies such as Google, Amazon and Facebook are already living this principle.

Big data analytics make it possible for financial institutions to analyse client data and other information, for example data purchased from market research organisations. On the basis of such fact-based analysis, derived scenarios and their precise interpretation, it is possible to make sound decisions in connection with the development of products and banking services. These new and improved products and services are tailored based on the client's needs. This usually leads to a comprehensively optimized product and service range which in turn makes it easier to exploit up- and cross-selling potentials.

With the disclosure in the context of AEoI, clients are forced to make their financial assets transparent for tax purposes. For this reason, a growth in client demand for tax reports is expected – both for current and past tax periods. This need represents an opportunity for financial institutions. By providing individual tax reports, the financial institution can respond to clients’ needs, differentiating itself in relation to competitors and also by thus acquiring a new source of revenue. To provide such a service professionally and with high quality, client data quality is essential.


Client Data Management contributes to a successful business model of a financial institution. The AEoI provides for new opportunities, to leverage client data and to improve client advisory. The new regulatory requirements should not only be considered as something tedious and unavoidable, yet also as an opportunity for differentiation. Notwithstanding, the structured gathering and a high quality of client data are necessary in order to make use of this opportunity.

With a clearly defined client data strategy, a corresponding management function and dedicated data profiles, financial institutions can benefit from the opportunities related to the AEoI. Alongside the achievement of the required compliance in connection with AEoI reporting, to which a stringent client data management contributes, market opportunities can also be tapped by offering tailored products as well as bespoke services and thereby exploiting cross- and up-selling potentials.



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