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Let’s get onboarded

As the regulatory environment continues to add complexity and demands in the banking sector and with technology evolving quickly, KYC platforms offer a credible alternative to in-house clients onboarding and lifecycle management solutions. 

Customers Onboarding: A strategic activity

Customer onboarding addresses all pre-trade activities to be performed before dealing with a customer for the first time such as the KYC process. Recent regulatory changes such as MIFIDII, EMIR and FATCA are making onboarding processes more complex and rigorous and there are severe financial repercussions associated with failure to meet regulatory requirements. In 2012, HSBC was fined £1.2 billion for failing to prevent a money laundering incident. More than 100,000 accounts were identified as contributing to tax evasion with a total asset size exceeding £78 billion.

To manage these increasing regulatory risks and be reactive to customers’ requests, banks need to engage more resources to ensure compliance. In this context, it is not surprising to see that banks’ regulatory and compliance departments have grown significantly over the past few years.

The proposal of onboarding platforms is to perform onboarding activities on behalf of the bank. For banks, it is an opportunity to outsource a significant part of the onboarding process and make considerable cost savings.

The Benefits

Improve operational efficiency: Onboarding platforms save front office time and resources.

Reduce time to execute a deal: By outsourcing the process to onboarding experts, banks can expect to perform onboarding activities more quickly, accelerating their ability to transact.

Improve data quality/Integrity: Onboarding platforms offer standardised data records and documents

Minimise the impact of the regulation on the business: the risk of performing incomplete or incorrect analysis could be reduced by using a market standard tool.

Cost reduction (economies of scales): Onboarding requirements are very similar between banks and banks have many customers in common. If a customer has been onboarded on a platform then most of the data is transferable to other banks.  One of the key advantages expected is a reduction in the marginal onboarding cost because of economies of scale through large volumes of similar customer data being handled and reviewed.

Customer Lifecycle Management: A major advantage of a 3rd party provider is that they offer continual updates to a ‘macro’ compliance data base. For instance, if a counterparty become politically exposed the data will be updated and captured centrally and some alerts will be automatically generated to appropriate users in the compliance department. 

Key Market Players:

The Drawbacks

No Global solution available: The biggest challenge currently is that no single platform covers the full business scope. Some platforms have good coverage of transaction banking activities, others of corporate banking, and others of funds for instance but none have a comprehensive coverage of all activities.

IT Complexity: Another consequence of the absence of a global solution is that, in the short term, banks will have to connect to several platforms in addition to their own in-house tool if they are using onboarding solutions to support their process. This will generate more IT complexity impacting resourcing and costs. It might be a transitional situation but realistically we can expect it to last several years.

Lack of process control: New regulations are making banks more accountable for customer review, even if the onboarding process has been outsourced to a third party provider. As an example, in 2015, the Central Bank of Ireland imposed a  fine of €1,750,0005 in respect of AML and countering the financing of terrorism failures by Western Union Payment Services Ireland Limited, where the bank failed to ensure the quality of the work outsourced to a third party agent. The regulator argued that there were not enough procedures, training and systems in place to monitor the third party.


Clearly, onboarding solutions are a good opportunity for financial institutions to improve their efficiency and reduce their costs from a basic assumption of outsourcing of labour intensive tasks. There are also benefits to be gained through economies of scale with the overlap of the same clients in databases within the banks.

The ultimate accountability for dealing with customers obviously still resides with the banks (specifically the front office) irrespective of the fact that they may have opted to outsource KYC and onboarding processes to third party providers. In the end, banks should always be responsible in the eyes of the regulators and this seems even more salient a consideration given increasing regulatory changes and demands on banks.

Currently, the market is not yet mature enough to provide comprehensive coverage through a unique global solution but in time the solutions will evolve and with more value added. In the short term, it may make sense for banks to launch pilots for particular market segments in which the benefits are already well identified.




 1. https://risk.thomsonreuters.com/products/thomson-reuters-org-id-kyc-mana...

 2. http://www.kyc.com/

 3. https://www.swift.com/our-solutions/compliance-and-shared-services/finan...

 4. http://www.clarientglobal.com/pkyc/

 5. http://www.centralbank.ie/press-area/press-releases/Pages/SettlementAgre...


Copyright © 2016 Sia Partners. Any use of this material without specific permission of Sia Partners is strictly prohibited.

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