20 August 2014

Regulatory Client Onboarding

Marc Murphy - Fenergo

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Data Management 101

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LEI... the silver bullet to truly cleansed legal entity data

07 August 2012  |  4509 views  |  0

The introduction of the proposed Standard Legal Identifier (LEI) is a golden opportunity for many financial institutions to enhance and improve overall client data management and achieve the coveted cleansed legal entity data repository. The ability to assign a single, unique identifier to each and every legal entity - that can be shared both within and between financial institutions - will enable the creation of a true, complete and accurate financial and risk-based picture of the client, its associated entities and all related beneficial relationships. Not only will this help risk management and monitoring, it also enables the bank to measure client profitability more accurately.

And while still very much up in the air regarding specifics around jurisdiction (centralised vs federalised), governance and implementation, one thing is for sure – banks that have the cleanest and most organised client data will spend far less time and money on implementation of LEI across their institution.

For the majority of financial institutions, the introduction of the LEI will require them to undertake an institution-wide data cleansing and remediation initiative. Once an LEI has been assigned to an entity, the bank must be able to map each existing entity to its newly assigned LEI. To do this, the bank needs to be able to identify all records of client data being held in multiple databases and departments across the institution.

There is a significant probability that there is more than one record being stored for most entities in various departments across banking institutions. If duplicated or numerous entities do exist, the bank needs to be able to determine if they refer to the same entity and specify which contains the most updated or relevant information, before deciding if these records should be merged or grouped in some way.

Where this gets complicated is that this must be done for the specific client and all other associated entities to that client (associated companies, directors of those companies etc.). The Standard Legal Entity Identifier will help in putting in place precise definitions around client relationships and the hierarchy of relationships as it pertains to them. At the moment, experts claim ownership will be defined by LEI as greater than 50%.

Once the cleansing, remediation and mapping exercises of all entities and associated entities are completed, the bank needs to examine the impact that LEI will have on their client onboarding processes. It is expected that the LEI will require changes to customer due diligence / know your customer processes and procedures, necessitating the checking of the entity to ensure it is established and that all AML obligations have been met accordingly. The most obvious change from a technology perspective will be creating a new field to capture the identifier, however, the CDD / KYC solution must also be capable of feeding this identifier downstream into other functional areas such as credit, legal, collateral and operations to achieve the single client view across the institution.

As we await final regulations on LEI implementation, now might be a good time to thinking about how to start that mammoth client data cleansing and remediation project. LEI could represent the silver bullet to achieving a fully integrated, silo-free, single client view that has been talked about for years. And the banks that steal the lead on this by getting their data houses in order will succeed in achieving the smoothest LEI implementation across their institution.

TagsRisk & regulationWholesale banking

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