Part 2 – Regulatory and Operational Client Lifecycle Management Ecosystem

(7 June, 2016) As noted in our previous post, Client Lifecycle Management is an extremely complicated space, and many of us who have worked for decades in data management and financial services still struggle to link all the constituent parts together coherently. The challenge for firms is to initially develop and then maintain a strategic change mentality; better yet a capability of experienced practitioners who are able to “know and connect” the needs of the ecosystem across the following inter-linked contexts:

1. Challenges and issues identified that relate to the conduct of business,
2. Regulations that apply to the firm, globally, and what is required to be compliant with the rules,
3. Vendor solution offerings across the various dimensions of both business and regulation exigencies.

This evolution is crucial, as in the coming years, the firms that will thrive will be those that can adapt their strategies to design and deliver the operational capability to respond effectively to the new and evolving environments. Having said that, it would be both helpful and apposite here to look at the elements of the ecosystem mentioned above, across potential issues, solutions and future considerations.

Issues identified:

In our experience, the operational issues in the client lifecycle and entity data management space usually encompass: a combination of manual processes / no automated workflow, ad hoc application of policy, no audit trail of either data or policy implementation, inaccurate or missing data, lack of system integrations (no STP), and poor engagement and understanding between critical teams across business lines and geographies.

To make things more piquant, interwoven across and within these already challenging situations are the actual data management tasks of:

• Obtaining and maintaining entity identifiers (LEI, SWIFT BIC etc.),
• Knowing and interpreting global regulations that require entity data,
• Sourcing core entity and corporate hierarchy data,
• Managing disparate approaches to entity data management within the firm,
• Dealing with entity data quality issues,
• Articulating the benefits and business opportunities of strategic entity data management.

A subset of these issues, yet a large proportion of the difficulties, lies in the variety of regulations themselves and these need an exposition all of their own.

Regulations:

As noted above, a focal point of entity data management, is the need for banks to remain compliant with the many regulations that now govern their global activities. Across geographies, different regulatory approaches have been taken to address similar market issues; resulting in areas of both inconsistency and significant overlap in their demands. This situation has increased the challenges for firms who operate cross-borders, and as complex as the landscape already is, the market view is that the regulatory scenery will continue to evolve; most likely increasing differences for the foreseeable future.

It is key for firms to work now, to be in a position to respond flexibly as the situation develops. A quick look at some of these regulations gives us a headline list:

1. OTC Derivatives
• Dodd Frank Act (USA)
• European Market Infrastructure Regulation
• Australian Securities and Investments Commission
• Japan Financial Services Agency
• Hong Kong Monetary Authority
• Monetary Authority of Singapore
• Canada

2. Tax
• Foreign Asset Tax Compliance Act (USA)
• Common Reporting Standard (Global)

3. Anti-Money Laundering
• Anti-Money Laundering Directive IV
• Financial Crimes Enforcement Network Customer Due Diligence

4. Data Quality and Privacy
• Basel Committee on Banking Supervision 239
• European Union General Data Protection Regulation

5. Market Oversight and Abuse
• Markets in Financial Instruments Directive
• Markets in Financial Instruments Directive II
• Market Abuse Directive / Market Abuse Regulation
• Alternative Investment Fund Managers Directive
• AnaCredit
• Money Market Statistical Reporting (MMSR)
• Securities Financing Transaction Regulations (SFTR)

6. Management Responsibility
• Senior Managers’ Regime (UK)

7. Insurance and Asset Management
• Solvency II
• UCITS
• AIFMD

In our next post we will discuss the response to this regulatory onslaught…

Mark Bands – Head of Product Strategy & Regulatory Intelligence