Whilst most of the Client Lifecycle Management (CLM) commentary out there touts technology, automation, robotics and artificial intelligence as the answer to all of your CLM and client on-boarding challenges, New Link Consulting takes the view that many firms should be spending their time fixing some of the more fundamental challenges of CLM before investing in the newest, shiny thing. Automating a poorly designed process, without the right governance model, controls and clear accountabilities usually results in a poor outcome, and so addressing policies, procedures, operating models and roles and responsibilities across the lines of defence is the right place to start. Easily said, not so easily done!
New technology is undoubtedly an important part of the longer-term solution, but we advocate fixing the basics first so firms have a solid basis to build upon.
A Perfect Storm?
We have the perfect CLM storm brewing. The FCA has recently issued a large fine due to CLM shortcomings and backlogs….. at the same time as acknowledging the potential financial crime difficulties and challenges caused by the Covid-19 pandemic.
For those who read the FCA’s Final Notices, the recent £38.7m fine imposed on Commerzbank in June 2020, sent some shockwaves through the CLM/KYC/ Onboarding community. The FCA described onboarding and periodic reviews in the bank as ‘out of control’ and identified inadequacies with PEP identification, verification of beneficial ownership, sustained and significant backlogs of client refreshes and ‘not fit for purpose’ transaction monitoring. If clients have not yet studied the details of the Notice closely, it makes for an educational read and a very clear case study of what can go wrong… dare we say that we have yet to meet a client who does not have, at least to some level, similar weaknesses in terms of systems and controls.
The FCA has acknowledged that Covid-19 has created operational difficulties for firms…no face-to-face meetings…..restrictions on non-essential travel….. which have affected firms’ abilities to use traditional methods to verify a customer’s identity. Thankfully, the FCA has allowed firms to re-prioritise or reasonably delay some activities, including ongoing customer due diligence reviews, or reviews of transaction monitoring alerts. The expectation is, however, that firms have a clear plan to return to the business-as-usual review process as soon as reasonably possible.
Many firms are starting to plan to deal with backlogs caused by operational difficulties during the pandemic – of course this means that firms are having a double whammy, both to meet on-going client on-boarding and periodic review volumes, exacerbated with perhaps now playing catch-up (following the Commerzbank fine)…whilst all the while ensuring they keep their eye on the (many!) balls
We see firms facing challenges across the lifecycle of the client relationship and the examples set out below give a flavour of some of the main issues raised with us by clients.
- In many firms, onboarding of new clients is slow, with multiple hand-offs and a pretty poor customer (and staff) experience.
- The respective roles of front office, middle office and compliance are rarely clearly defined and articulated.
- Policies and procedures and supporting desk-top/operational procedures often fail to meet the FCA’s expectations to be clear, easily understood and readily accessible.
Ongoing Due Diligence
- Many firms have a seemingly never-ending backlog of periodic reviews. By their very nature these will always be required (unless and until the current practices can be replaced by a process of constant refresh). So this one is going nowhere for now.
- As is the case with on-boarding, policies and procedures are often poor and inaccessible.
- There is much demand for, and a finite supply of, experienced KYC Analyst contractors to support the peaks of this work.
- Consistency and quality control are a constant challenge.
- The sheer numbers of ‘false positives’ is cited by many firms as the biggest challenge arising from customer screening for sanctions, PEPs and adverse media. One cause, but by no means the only one, is poor data quality.
- To an extent false positives can be reduced by better calibration of screening tools but the problem will remain until the underlying data quality is improved – or smarter screening is deployed.
- Escalating costs for dealing with hundreds, and sometimes, thousands of alerts.
How Can New Link Consulting Help?
New Link Consulting’s Regulatory and Anti-Financial Crime Practice, run by experienced practitioners, has designed and tested CLM functions for a range of organisations. The head of the Practice has undertaken Skilled Person AML Reviews on behalf the FCA and the team has worked on numerous regulator-driven remediation programmes. We have extensive experience and AFC domain expertise and can call upon experts in business analysis, process improvement, operating model design and enhancement to help transform due diligence and screening.
In particular, we can:
- Benchmark your CLM model against industry peers – and recommend and deliver enhancements.
- Test outcomes such as KYC files or alert dispositions.
- Provide experienced and skilled KYC resources to manage backlogs and on-going challenges with onboarding and periodic review volumes.
- Prepare you for a regulatory intervention.
Working with New Link Consulting will help deliver:
- Regulatory Certainty
Assurance that your current approach meets regulatory expectations and remediation to address any systems and control weaknesses.
- Enhanced Client Experience
Enhance client experience by making it fast, transparent, smart, seamless, consistent, streamlined and compliant.
- Better Staff Experience
Give staff the confidence, skills, training and tools to do their jobs better
Drive through efficiencies – reduce errors – drive down cost.
For many firms, the due diligence process consists of a series of manual checks completed by operations staff. This creates challenges in term of accuracy, consistency, traceability and provability. Once the basics are in place, New Link Consulting works with solutions experts who can automate the process and drive through efficiencies, from digitisation of paper documents through to one-stop checking for PEPs, sanctions and adverse media using intelligent systems.
- Operational Resources
The AFC Practice has extensive experience in providing expert resources to support firms with support for onboarding and periodic reviews.
Peter Brooke – Practice Lead – AFC and Regulatory Practice
M: +44 (0)7590 105185
T: +44 (0)203 826 9700
Walter Hogg – Director – AFC and Regulatory Practice
M: +44 (0)7758 690 261
T: +44 (0)203 826 9700
Andrew Hovell – Director – AFC and Regulatory Practice
M: +44 (0)7493 071 823