Institutional banks struggle to manage cross-border regulatory compliance and entity data management

By Nicole Miskelly | 8 October 2015

A recent survey commissioned by Fenergo and produced by Aite Group, shows that institutional banks are struggling to manage regulatory compliance and entity data management across multiple jurisdictions.  

According to the research, which highlights the challenges capital markets firms face in the current regulatory environment, this struggle is impacting the implementation of a global Know Your Client (KYC) compliance policy and due to local issues with regulations such as the Anti- Money Laundering Directive (AMLD IV), compliance towards local derivative regulations and tax compliance rules are having an impact on client onboarding and compliance processes overall.

The Cross-Jurisdictional Regulatory Compliance: A Complex Data Management Web research paper features results from interviews with 12 capital markets firms and examines the major global regulations that are impacting legal entity data, client onboarding, and KYC processes, and looks into how firms are approaching compliance from an enterprise-wide perspective.

According to the survey, the AMLD IV provides the greatest challenge for legal-entity focused compliance teams because it requires a more risk-based approach to anti-money laundering. In order to affectively comply to this directive, the research states that firms must determine the level of risk posed by a client before applying the appropriate level of due diligence and to identify ultimate beneficial ownership details.

Global and local derivatives regulations such as Dodd-Frank, EMIR and MiFID II, and compliance regulations FATCA and Common Reporting Standards (CRS) closely follow in terms of the level of challenge they present for firms that do not have their client data under control.

The research also analysed the onboarding processes of two similarly sized financial institutions and found that the bank which relies less on manual processing, had automated bank costs that were 87 per cent less than the bank that relies primarily on manual processes.

According to the research, a key part of the cross-border challenge is global divergence in regulatory requirements, which are restricting institutions' ability to set a global policy for KYC compliance.

Virginie O’Shea, Senior Analyst at Aite Group says: “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”.

At Sibos this year there are a number of sessions focused on regulatory compliance and the challenges firms face in meeting the compliance requirements for such a diverse range of regulations. Firms now realise that they have a growing set of technology options available to them to help address compliance and effect this has on KYC and onboarding.

According to the Fenergo and Aite research, respondent firms have different priorities with regard to technology deployment in terms of building or buying software, or continuing to rely on manual processes. Results show that a third of firms questioned have built their own internal platforms to support KYC and onboarding, and a quarter have opted to work with a vendor.

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