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Client onboarding is a crucial set of interrelated activities that offer banking enterprises a competitive opportunity. The key challenge is to rationalize and coordinate the disparate systems and databases containing client data to ensure a smooth, seamless onboarding process.
Efficient Client Onboarding: The Key to Empowering Banks
• Cognizant 20-20 InsightsEfficient Client Onboarding:The Key to Empowering BanksClient onboarding is one of the most critical functions for banks asit directly impacts client experience, servicing and relationships —all of which, in turn, impact profits. Executive Summary touch point — the “client onboarding” process — has emerged as a vital client service differen- Client onboarding is emerging as a major focal tiator. Banks’ infrastructure for client onboarding point for banks and financial institutions, which has therefore become a focal point for CIOs in are grappling with evolving market dynamics, stiff terms of cost, capacity, productivity and opera- competition, regulatory scrutiny and operational tional efficiencies. overheads. This area offers banks an opportunity to expand to new geographies, acquire newer and From a business perspective the client onboarding stronger businesses and establish themselves as function is extremely complex, given differing best in class. Banks therefore need to streamline local regulations and the lengthy negotiations the onboarding process and offer a customized and documentation requirements involved. client service. Moreover, the onboarding process for the clients as active counterparties in a multiproduct trading In response to regulatory trends and require- relationship is constrained by product-based silos. ments, banks are shifting away from proprietary In many instances the same client needs to be trading toward flow business. Investment banks onboarded for each asset class, as the underlying and prime brokers must therefore focus more systems are not integrated. Even for a single asset on how they onboard, understand and treat class, many systems are used for onboarding — their clients. Numerous regulations from the depending on the sophistication and coverage Foreign Account Tax Compliance Act (FATCA) to required for a particular client. These disparate the Markets in Financial Instruments Directive systems result in longer onboarding cycles. Also, II (MiFID-II) have forced banks to revisit their the lure of an immediate “trading opportunity” client acquisition and relationship management often prompts the front office or middle office processes. In the face of tightening margins and to use a patchwork of the systems involved. This increased or flat costs of trade processing and risks compromising the integrity and comprehen- operations, client service has gained significant siveness of critical client data. importance. Additionally, firm-level auditing and reporting has drawn attention to “know your The process for a client to be formally onboarded customer” (KYC). Consequently, the first client and start doing business with a bank can cognizant 20-20 insights | february 2013
take several days or weeks as a result of the In a typical investment banking organization, challenges outlined above. The process is rarely the sales/front office/marketer liaises with the structured to provide a relationship-centric view; client and begins the client acquisition process it is considered a routine, insignificant activity. by initiating an onboarding request. Typically, Inefficient onboarding can often lead to client the dedicated onboarding team takes ownership attrition and missed oppor- of the onboarding request and engages with Typically, the tunities for growth and cross- other departments to process the request. Once selling. Losing a client has the the relevant client details and documents arededicated onboarding obvious impact on a bank’s gathered, processes such as compliance, creditteam takes ownership reputation and hampers new and legal need to follow to ensure that identi- of the onboarding client acquisitions. fication checks are complete, credit lines are established and legal agreements are negotiated. request and A report from Aite Group Eventually, operations sets up the client account engages with other suggests that more than in all trading, collateral and settlement systems. 70% of U.S.-based firms view departments to client onboarding as either This establishes the client relationship. process the request. a back-office function that For an existing client, an incremental request (e.g., needs to be cost-contained or adding a new party or account) can come through a front-office automation tool.1 Only 30% viewed various channels such as sales, marketing, CSR or client onboarding as a competitive differentiator. the onboarding team. Unsurprisingly, the client onboarding function is A typical client onboarding lifecycle can be divided typically underfunded. into five distinct stages, as shown in Figure 1. We believe it is crucial for banks to demonstrate a client-centric focus at each client touch point in Challenges order to secure a competitive advantage. Banks face a number of hurdles in establishing an efficient client onboarding framework. Our Client Onboarding Process analysis indicates that these hurdles mainly come Client onboarding involves several important under four streams: people, process, system activities such as evaluating new clients, and data. setting up credit process compliance, ensuring People agreement on legal terms, opening of a new account and making the client “trading enabled” Often client onboarding is viewed as a routine in line with the bank’s business policy as well as process and not as an enormous opportunity industry regulations. to build relationships. Consequently, there is no focus on efficiency and scaling up. Client Onboarding Process Set Up Onboarding Client Due Credit Terms Agreement Party/Accounts Request Diligence Setup Management in Systems • Gather client details. • Perform credit due • Negotiate legal • Complete account • Solicit client. • Identify and request diligence. terms. setup. • Raise new relevant client • Establish credit limits • Execute legal • Enable product onboarding request. documentation. as appropriate. agreements (e.g., trading. • Enrich request. • Perform regulatory • Assess and manage ISDA, CSA, etc.). • Send ”ready to • Manage incremental trade” notification AML and KYC additional credit risk • Complete legal request for existing to trading desk. due diligence. element for high net due diligence. client. • Complete additional worth clients. client ID, document checks (geographic specific) and approve. Sales/FO/Marketer KYC Credit Legal Operations Figure 1 cognizant 20-20 insights 2
Often an onboarding team may lack a sense of of defined client attributes and inconsistentownership. For example, the team may assume hierarchy. The lack of unique client identifiersthat ensuring clarity in the contract documen- for onboarding and incorrect mapping betweentation is solely the legal team’s responsibility. A source and downstream systems are also alack of shared objectives and information sharing problem. These have a cascading impact andbetween the front office and back office results in result in manual rework, long turnaround timesbottlenecks that compromise the level of service and inaccurate and inconsistent data.provided to clients. Often the different teamsinvolved in client onboarding are not motivated A Way Forwardto collaborate and there is no revenue-sharing Governancemodel in place. As client onboarding is primarily a coordination function, it encounters many governance issues. ItProcess is therefore imperative to establish a governanceMany banks still have fragmented processes body to provide leadership and oversight forthat prevent a seamless onboarding function. the program while also supervising ”business asFor example, the client onboarding requests usual” activities.can come through different channels of a bank.Often the onboarding process involves several The first step would be toe-mails, paper documents and faxes as well as establish a client onboarding The absence of afrequent manual intervention. For the client, the leadership team. This team flexible or scalable ITabsence of clear information on the status of the can define KPIs, incentive platform to onboardonboarding becomes frustrating. This opacity is structure, points of contactdue to the lack of a centralized view of a client, (PoCs), SLAs and the clients has beenwhich can lead to potential fallouts such as escalation path. The next a major roadblockincorrect account relationships being set up, and step should be to align a leading to operationalinaccurate mapping, which, in turn, can cause an working group to each ofinternal loss for the bank. the functional work streams breaks in the client — e.g., KYC, credit, legal, etc. onboarding flow.System This will enable the banksThe absence of a flexible or scalable IT platform to assign ownership and focus on accountabilityto onboard clients has been a major roadblock through clear milestones. Additionally, throughleading to operational breaks in the client ongoing financial health checks and informationonboarding flow. For instance, many banks suffer exchange, banks will be able to move away fromfrom a lack of synchronization among multiple a traditional siloed approach to a functionallysystems. Several banks still operate with e-mails unified client-centric governance model.and faxes, without any automation to facilitatefaster onboarding. Overall, the lack of automation The governance team should define the keycreates an inconsistent user experience across principles underpinning the client onboardingtouch points and reduces efficiency significantly. process. Figure 3 is an illustrative example of key principles.DataThe lack of a defined “golden source” for client Client Onboarding Data Frameworkdata is often a prominent issue for banks as they A major driver for establishing automation,continue to operate across siloed data sources. efficiency and streamlining of processes is theAdditionally, banks often struggle with the lack availability of clean data.Client Onboarding Proposed Solution Document Governance Client Onboarding Client Onboarding Entitlements Client Onboarding Management Dashboard Data Framework Work Flow FacilityFigure 2 cognizant 20-20 insights 3
Client Onboarding Principles Category Principle A consistent client experience should be achieved throughout the onboarding Client Touch Point process. The controls should be independent from front-office influence. Process Controls There should be segregation of duties, owners and users. The controls should be integrated in the business flow. An interaction mechanism should be defined to facilitate discussion with a People diverse set of stakeholders to understand their feedback. Processes should be automated wherever possible. Supporting Technology The IT infrastructure to support the guiding principles should be continually upgraded. A golden source of client data should be defined. Data Quality Information should be correct up front to facilitate clean data downstream.Figure 3Focus on Client Data and Key Client Attributes Define Client Data “Golden Source”As we highlighted earlier, the lack of proper A holistic view of a client’s activities requires adefinition of client reference data and the absence “golden source” for client data. As client dataof a single operating model for client data and is often obtained through a number of diverseinformation are common problems among banks. methods using a variety of tools or source systems across different geographical regions, thereTo tackle data-related problems, it is vital to is a clear need for a client data repository. Wedefine and capture all client data information and believe this need can be served through a clientattributes. Banks need to define their own set of onboarding “master database.” Such a databasekey client data attributes as a first step in client should consist of the following elements:data management. The scope can be expandedfurther to define metadata attributes focusing • Standard client hierarchy: The clienton the client’s risk profile and trading prefer- hierarchy used by different teams at the sameences, etc. at a granular level. A sound metadata bank is often inconsistent. Figure 5 depicts amanagement structure covering all areas will typical client hierarchy in a bank which is struc-enable banks to segment clients appropriately tured in descending levels as Parent¬Group¬and extend additional service offerings. Fund¬Account¬Subaccount. The complexityKey Client Attributes Unique Client ID Listing and Regulation Status Account Document Hierarchy for Sales, Registered/Trading Address Credit, Reporting, etc. Client Institution Type Transaction System IDs Legal Name Tax Identification AML/FSA ClassificationFigure 4 cognizant 20-20 insights 4
Standard Client Hierarchy Client Legal Entity Parent Level Client Business Unit 1 Client Business Unit 2 Group Level Client Fund Level Account 1 Account 2 Account Level Subaccount Subaccount LevelFigure 5 arises when different teams use and refer to linked to downstream systems for consistent the client hierarchy according to their modus mapping. This will ensure smooth data flow and operandi. For example, trading views Dodd- enable tracing client data/information from Frank Legal identifier at the topmost level, source to destination. while the sales team maintains the relationship with the client at the “group” level. Similarly, • Ability to support draft, prospective, suspended and inactive statuses: The client while the prime services team is engaged at onboarding master database should be able “fund” and “account” levels, the settlement to support different statuses during the client and operations team is engaged with the activity lifecycle. For instance, if the client “account” and “subaccount” levels. Therefore decides to move away then the inactive status a harmonization of the hierarchy levels of must be reflected and should be properly com- interest and concern should be driven from municated to stakeholders and downstream to the top, with consistent definition and usage of enable appropriate actions in terms of termina- levels and relationships to be maintained in the tion and product disablement. onboarding master database. The hierarchy should be based on a unique legal entity iden- Client Onboarding Workflow tifier (internal) and/or potentially on the legal We believe a harmonized and robust workflow is entity identifier (LEI) mandated by Dodd-Frank essential. It should focus on key activities such to enable compliance with requests at the as separation of global counterparty level in a timely manner. and local components and Many clients express• Client identifier as a primary key for the separation of processing onboarding process: Additionally, banks often and servicing by identi- annoyance with having use multiple source identifiers (BIC, Reuters fying relevant processes to deal with a bank and subprocesses, and by code, Bloomberg, etc.) for the same client. minimizing manual inputs that has different All these client identifiers need to be cross- mapped between applications to facilitate and variations. An approach processes for the both onboarding and processing of the client’s to establishing a robust various countries it onboarding workflow could trading needs. be as follows: operates in.• Cross-references to alternative identifiers within the client onboarding (COB) framework: Process Standardization Several downstream systems require client Many clients express annoyance with having to data to be processed at the transaction level. deal with a bank that has different processes Therefore a “unique client identifier” in the for the various countries it operates in. Process client onboarding master database should be cognizant 20-20 insights 5
standardization can deliver significant benefits • Ability to plug in new applications followingand contribute to improving the overall client process standardization and application ratio-experience. In order to accomplish this success- nalization.fully, banks can follow the following steps: • Adaptability to use a service-oriented appli-• Ensure that processes and subprocesses have cation to build a componentized model and been correctly defined in line with onboarding maximize service exposure and workflow needs across different areas of the business. enablement.• Identify manual operations and inputs such as Build an Intelligent Rules Engine relevant tax documentation. An intelligent rules engine should have provisions• Eliminate/automate manual operations where to build rules for workflow and other service feasible. components for processing. This is highly• Identify processes that can be globalized such desirable, as a client onboarding portal linked to as reference data setup. workflow and the rules engine will allow efficient client data validation, approval and attribute• Identify processes that can be localized such as capturing to be built into the system easily. This credit review. will also create a configurable implementation of• Optimizeprocesses with parallel processing, a centralized account workflow. minimizing sequential dependencies. The most important points to consider are:Onboarding Application RationalizationMost banks have different legacy systems under- • A common set of rules should be applied con- sistently through all components of the archi-taking similar tasks for client onboarding. For tecture.example, the investment banking division mayhave multiple applications for client data capture, • There should be validation rules to ensuredata check and validation — all of which can be single point-of-entry for account information.rationalized. Similarly, banks often use differentmechanisms such as e-mail, intranet, portals, • The rules engine design should be based on composable components — i.e., individualtools or a combination of these to collect and components that provide reusable services.submit relevant client documents. An application This will offer agility as services can becomerationalization exercise, in this case, can create a part of different solutions in response tosuitable business process platform to deliver this changing requirements.capability more efficiently. Banks can take thefollowing initiatives: Optimize and Enhance Automation A majority of client onboarding problems can• Define application inventory to trace any over- be eliminated or managed better if banks focus lapping or duplicate applications that perform on automation and reduce manual interven- similar tasks. These applications are candidates tion. It will help ensure timely completion of the for consolidation or elimination. process and the availability of accurate data. Our• Conduct application evaluation to select appli- experience suggests banks need to focus on the cations based on the actual business need. following:Establish a Robust Workflow • Replace manual functions with automatedThe ideal workflow should have: tools.• Context that dynamically adapts to business • Revisit the batch processes and feeds to rules. assess feasibility of automation and fast data propagation.• A dynamic user interface that can be customized to offer geography-specific views. • Minimize manual reconciliation and data break checks in the touch points through automated• Ability to support “draft status” of onboarding exception management. until data is available to move work further downstream. • Implement distribution matrix and client data distribution policies.• Abilityto capture priority management and audit trails. • Develop a real-time messaging interface to pass on relevant client data. cognizant 20-20 insights 6
Entitlements Document Management FacilityWith strict data secrecy and data protection Onboarding documentation management canrules put in place by different regulators, there be a frustrating process both from a client per-is a growing need to maintain data integrity and spective as well as from the bank’s point of view.prevent bypassing of the entitlement process. In Below we outline a more structured approach toorder to ensure that client onboarding is tightly document management.controlled, banks must emphasize the importanceof entitlements. The entitlement layer should be Identify Specific Document Requirementsimplemented so as to ensure the following: The first step to streamlining client documen- tation during onboarding is to define what is• The entitlement layer must be able to separate required. The COB team should define a master list role entitlements and data entitlements. of client document requirements for onboarding• It should address corporate and local (geo- and then contact clients. This will ensure that graphical) regulatory requirements for data the COB team controls the master document and privacy, security and protection. that there is no communication from KYC, legal or other groups to clients asking for additional• It should define client data access, ownership, documentation. usage and storage.• It should also consider specific regional data Improve Document Processing and entitlement requirements as there are often Management regional regulations (e.g., Swiss banking and The next step is to take measures to institution- other European mandates) to be considered. alize the document management process. We recommend the following approach:Additionally, client data validation and enrichmentshould be closely monitored. This will ensure • Establish an authoritative source of parameter-that the client data is of high quality and ready ized legal terms that form a foundation for riskto use. Ongoing control of client data quality management.and accuracy will not only minimize operationalbreaks causing long delays, but will also improve • Build a template library for all documents required across asset classes, client types andthe overall onboarding performance. jurisdictions.Illustrative Entitlement Matrix Role Entitlement Matrix Roles Sales COB KYC/Compliance Credit Legal Operations R–m R–m R–m R–m R–m R–m W–- W–- W–- R – m= Reading W – -= Writing Data Entitlement Matrix Attributes Sales COB KYC/Compliance Credit Legal Operations Core Client Create Create Validate Validate Validate Data Modify Modify Validate Validate Document Create Create Validate Validate Validate Details Modify Modify Validate Validate Product Create Create Validate Details Modify Modify Validate Validate Client Create Account Modify Details Validate Trading Create Setup Modify Details ValidateFigure 6 cognizant 20-20 insights 7
Illustrative Document List Product List Document Requirements OTC Derivatives ISDA, CSA/DRV/FBF. IRS, CDS, OTC Options, Commodities CSA/DRV/FBF/EFET and/or annexes. Vanilla FX and Currency Options ISDA, CSA/IFEMA/DRV/FBF. Exchange Traded Derivatives Listed derivatives account documents for futures and options, Listed Futures/Options on Futures, Listed Derivatives Clearing Agreement or Give Up Agreement. Derivatives Prime Services Platform-specific ISDA, CSA, PSA. Prime Brokerage, SWAP Give Up Agreement. KYC Account Opening & New account cover letter. Document Request Proof of Identification. Entity-related legal documents like trade license/MOA, Articles of Association, SEC registration, ownership documentation. Repos Master Repurchase Agreement. U.S. Dollar Repos, CS Securities (U.S.), Global Master Repurchase Agreement. Non-U.S. Dollar Repos Triparty Repo Agreement.Figure 7• Categorize and index documents by client type, • Ensure notification to clients at each stage document version and document type (e.g., of the onboarding process. For instance, standardize naming convention). document status notification to clients to prompt them to action.• Establish a document matrix and rules engine to provide auto-identification of the required • Set up consistent and consolidated manage- documents and approvals. ment reporting through information manage- ment and business intelligence systems.• Buildan intelligent document tagging and storage facility. • Establish exception and rule-based alerts management for the onboarding system and• Simplify the process to enable securing all the portal users to ensure perfect control and risk required approvals and signatures at one go, management. which will save time and reduce the burden on the customer. • Support key performance indicator (KPI) metrics and ensure best practice processes are• Integrate document management with the COB followed consistently. The following metrics framework by making it accessible to other can be collected: COB components.The above approach will significantly reduce effort >> Throughput (completions) = number of agreements/month/person.for banks, both in terms of managing existingclients as well as streamlining the onboarding >> New requests = number of agreements/framework for prospective customers. month.Client Onboarding Dashboard >> Time to first draft = average, days.The key to ongoing success for a client onboarding >> Client type versus time to execution.program is the ability to present information >> Pending/outstanding age analysis.— both static and in real time — to stakehold-ers. Banks must therefore build an onboarding Conclusiondashboard and implement the following: In this challenging economic environment, banks are expected to match each other quite closely in• Ensure all COB components feed appropriate terms of product innovation and financial service data into the reporting component system. offerings. A real difference will therefore lie in• Offer real-time views to support the COB team creating a high-quality first impression. The world and process participants; ensure integration of diminishing margins, increasing regulatory into sales dashboards. pressure, increased capital requirements and cognizant 20-20 insights 8