Efficient Client Onboarding: The Key to …

1 Cognizant 20-20 Insights Efficient Client onboarding : the key to Empowering Banks Client onboarding is one of the most critical functions for banks as it 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.

2 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.

3 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.

4 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.

5 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 are dedicated onboarding obvious impact on a bank's gathered, processes such as compliance, credit team 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.

6 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 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 ( , needs to be cost-contained or adding a new party or account) can come through a front-office automation 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.

7 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.

8 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 ( , 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.

9 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 inconsistent ownership. For example, the team may assume hierarchy. The lack of unique Client identifiers that ensuring clarity in the contract documen- for onboarding and incorrect mapping between tation is solely the legal team's responsibility. A source and downstream systems are also a lack of shared objectives and information sharing problem. These have a cascading impact and between the front office and back office results in result in manual rework, long turnaround times bottlenecks that compromise the level of service and inaccurate and inconsistent data.

10 Provided to clients . Often the different teams involved in Client onboarding are not motivated A Way Forward to collaborate and there is no revenue-sharing Governance model in place. As Client onboarding is primarily a coordination function, it encounters many governance issues. It Process is therefore imperative to establish a governance Many banks still have fragmented processes body to provide leadership and oversight for that prevent a seamless onboarding function. the program while also supervising business as For 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 to e-mails, paper documents and faxes as well as establish a Client onboarding The absence of a frequent manual intervention.