LEI Solutions LEI in KYC: A New Future for Legal Entity Identification

GLEIF Research: The Pitfalls of Onboarding



As illustrated in the research report ‘A New Future for Legal Entity Identification’ published by the Global Legal Entity Identifier Foundation (GLEIF), the process used for the onboarding of new legal entities is characterized by inefficiencies for many businesses in the banking sector. The research, which surveyed over 100 senior salespeople in the banking sector in the UK, US and Germany, revealed that 50% of financial institutions use, on average, four identifiers to help identify client organizations.

In reality, what does this mean for these senior salespeople, what is the impact on the broader business, and what can be done to improve the situation? To answer this question, we have summarized some of the key findings identified with the survey here. These are also highlighted within the GLEIF infographic shown below.

What are the principal challenges of onboarding client organizations?
There is a clear consensus around the kind of challenges businesses are facing when it comes to the quality of the identifiers they are using – the same themes of reliability, contradiction and time come up again and again. 49% of survey respondents say that middle-and back-office activities related to onboarding are a major burden. What’s more, 57% of senior salespeople spend more than 1.5 days per week on tasks related to onboarding. As a result, it takes an average of six weeks to onboard a new legal entity (seven weeks, if more than four identifiers are used). Respondents, however, were not so clear on what was taking up their time. Some identify compliance with know your customer (KYC) due diligence (18%) as their biggest time drain, while others highlighted documentation management (16%) or identification of the legal entity (15%).
How does the lack of transparency and visibility impact risk management?
These factors are having a considerable impact on the broader business. The issues associated with multiple identifiers include: inconsistent information; complex processes; a drain on resources; and a distinct lack of transparency. 46% of respondents acknowledge that the lack of transparency when identifying and reporting corporate structure does not bode well when it comes to meeting compliance regulations in financial institutions. Muddied waters make it difficult to evaluate risks properly meaning that onboarding and transacting decisions cannot be made with confidence, visibility or control. Ultimately, this means that both individual businesses and the industry as a whole are more susceptible to fraud and market abuse.
How does the length and complexity of the onboarding process impact business?
As well as draining time and hindering transparency, there is an even bigger business issue at stake. The research found that client organizations are not always sympathetic to the demands placed on financial services businesses by compliance regulations. Half of respondents (50%) agree that it’s becoming increasingly difficult to comply with KYC regulations. The top challenges identified include: the risk of losing business due to the length/complexity of the onboarding process (39%); client security concerns regarding who is able to access and view their documents (38%); and continuous changes in KYC regulation (37%).

This lack of sympathy means that client organizations are willing to move their business elsewhere if they feel that the onboarding process is taking too long. Lost business is highlighted as a very real consequence of the process, either through inability to glean adequate information or simply lack of patience on the part of the new legal entity. The research respondents believe that 15% of business is at risk as a result of the client losing patience with the process and 14% is lost because the client identity cannot be verified. The irony being, of course, that the legal entity might not find the process to be any quicker if they do take their business elsewhere – the research shows that the majority of financial institutions are all using four or more identifiers to onboard new entities, and are therefore liable to the same inefficiencies.
So, how can the Legal Entity Identifier (LEI) help to improve the process – reduce the time taken, increase transparency and ultimately cut the amount of lost business?
52% of respondents believe that onboarding time will increase in the near future. This presents a clear opportunity to align on one global identifier to generate efficiencies.

The LEI offers businesses a standardized, one stop approach to entity verification, enabling quick, consistent, accurate information on both client organizations and other business partners and suppliers. This makes time-consuming, inconsistent identification processes a thing of the past. Replacing disjointed information with a globally accepted approach, based on broad adoption of the LEI, would remove complexity from business transactions and deliver quantifiable value to financial services firms. For more information, refer to the full report titled ‘A New Future for Legal Entity Identification', which details the results of GLEIF’s research into client identification in financial services and outlines the way forward based on a standardized approach.

Download as PDF: GLEIF Infographic – The Future of Legal Entity Identification: Why a Standardized Approach is the Way Forward

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