Ready to Trade – The Unbroken Chain of Evidence

Ready to Trade: End-to-End Onboarding

Ready to Trade: End-to-End Onboarding – The Unbroken Chain of Evidence

Greater Transparency Around Beneficial Ownership:
When we first wrote about the ‘Missing Piece in the Onboarding Puzzle’, we were very much focused on the operational processes, and suggested how important it was to include Account and Settlement data as part of the onboarding process, to minimise onboarding times and to improve operational efficiencies – so firms were ready to settle and not just ready to trade.

Since we wrote this original paper time has moved on, and with the inexorable march of regulation, what was once best practice has now become a regulatory imperative, to join account and SSI set up into the onboarding process to improve payment transparency. Under the 4th Anti-Money Laundering Directive (4 MLD) and accompanying Fund Transfer Regulation to counter terrorism financing, tax evasion and increase transparency around beneficial ownership, there are specific requirements to ensure that beneficial owners are properly identified, and further, that there is direct traceability on all payments that are sent from the financial institution to the applicable entities. Banks need understand who they are acting on behalf of and have to provide full traceability of beneficial owners and who they are paying.

Regulations like EMIR, Dodd-Frank, MiFID II and FATCA, are further driving change and investment in the client onboarding space. Regulators are enforcing the rules more vigorously, so getting your onboarding house in order is essential to ensuring you stay on the right side of regulatory compliance. Furthermore, these requirements present an opportunity for financial organisations to review their processes and implement a structure that will improve efficiencies and drive down costs.

The Harmonised Process:

So how do you move continuously and smoothly through client onboarding to trade readiness in one harmonised process?

Ideally, when the front office brings in a new client and initiates the onboarding process, this process – from document gathering, to compliance, to credit and legal checks – will be managed in a single harmonised process; providing a full trail of evidence to prove compliance throughout.

But, many client onboarding solutions available in the marketplace are missing a crucial element: integrated account set up with the associated settlement data. This is what would enable them to seamlessly move from onboarding and carrying out KYC and AML checks, to booking, confirming and settling trades. Many firms are still manually setting up account and SSI data and therefore cannot provide an auditable trail for compliance.

To truly reap the benefits of a single holistic approach to onboarding, you need to integrate account and settlement data for all the products and geographies required by the client relationship, to enable firms to book, confirm and settle trades – moving quickly from initiation to trade readiness. Without this final step, the client onboarding process is in effect incomplete, raising the prospect of additional delays and costs, regulatory risk and reputational risk.

Many financial institutions still have a decentralised and often fragmented approach to client onboarding and entity data management – splitting tasks and technology platforms between many groups across front office, operations, reference data and compliance. Pressures including regulatory, customer service and cost are now forcing them to address this outdated approach.

Joining Up the Dots:

But addressing onboarding functions in isolation isn’t enough! To be truly efficient, firms must consider the true end-to-end approach; from initiating the new client onboarding process, performing checks and documentation, through to product set up and settlement information, then back to the front office to be ready to trade seamlessly. In this way they will lower onboarding costs and time to revenue, as well as enhancing their customers’ experience.

By leveraging a joined-up approach, where account and settlement data is integrated early in the onboarding process, especially for those financial institutions dealing with larger investment manager clients, real advantages can be made in reducing regulatory risk.

Unbroken Chain of Evidence:

When setting up new clients and their accounts, it is essential that you correctly identify the parties you are dealing with, both as agents and the underlying principals. To meet the regulators needs you must ensure that you understand who is behind the trades. This is especially true with OTC products which have enhanced risks from a credit and regulatory compliance perspective. Accessing and pre-populating client records with this additional data early in the process – particularly integrating industry sources such as settlements data from Omgeo ALERT or entity data from Thomson Reuters Avox – will enable you to ensure you have correctly identified both the agent and underlying principal as you set up the funds and their related accounts. Benefits will include reduced manual work, as much of the data collection can be automated, so reducing keying times and risk, and a reduction in account duplication. More crucially though, you will greatly improve your ability to comply with regulatory requirements by proving traceability through your entire onboarding processes to when payment is made – providing an unbroken chain of evidence.

Time to Revenue:

Moving from onboarding to being ready-to-trade in a single harmonised process will present a distinct advantage over competitors. This speed to trade will provide faster speed to revenue, which will in turn improve the profitability of each new client. Inevitable delays in the decentralised and more manual approach can lead to missed opportunities for revenue, growth and cross selling. As well as improved revenue opportunities, the reduction in the manual and decentralised functions of an integrated approach will significantly reduce the costs associated with client onboarding and KYC checks. A reduction in the reputational damage that inefficient firms face through poor customer service, which ultimately leads to client attrition, will also be realised. No customer wants to be faced with multiple data requests and forms to fill out, or a lengthy process before being officially onboarded. The more efficient you are, the better your customer service and the better your reputation in the marketplace.