Regulatory Challenges for Financial Institutions

Banks are facing an increasing amount of regulatory challenges. Rules around know your customer (KYC) are particularly receiving increased attention, with financial institutions needing to ensure that they do know who they are conducting business with in order to stay compliant.

Against this backdrop, strategic solutions are required that take into account the end-to-end process to meet the broader regulatory mandates. These solutions should be built to handle the complexity of the regulatory challenge rather than merely tackling one aspect of a bank's business. Integrated offerings around screening and monitoring are particularly in demand at the moment. At the same time, banks may require help with client outreach. It is important to have a modular approach in order to have solutions that can support all of these demands.

When you consider the domination of the multi-bank scenario, there is also an opportunity for the markets to evolve with a common set of standards in place.

Challenges for relationship managers

Relationship managers are spending considerable amounts of time caught between the compliance and the client. Some 20-30% of their time can be taken up collecting required documentation for their counterparties. In addition, lower margins in the industry indicate that there is a move for financial institutions away from product-centric sales to be more client-focused. There has been an emergence of new business models by banks as they try to readdress the balance internally.

There also has been a re-evaluation in the larger financial institutions of their underlying operating model. This has led to a rise of industry utilitisation and a drive to standardisation that will hopefully free up relationship managers to focus more on the product-selling element of their role.

Best practice in UBO

When on-boarding a new customer or counterparty, collecting ultimate beneficial ownership (UBO) information is one of the biggest challenges that banks face. The multi-jurisdictional nature of the regulatory market can make it very difficult in terms of whether you go to a 25% level, a 10% level or even a 2% level share of an institution’s voting rights.

This complexity in the market creates challenges around how standardisation can be promoted in the industry. Different types of emerging technologies, such as artificial intelligence, can be brought online to identify UBO information, which could lead towards a more common standard over time. However, some of the more complex trust structures are likely to always remain challenging when it comes to establishing who the UBO is.