When Process Creates Potential: New Opportunities for Banks in Client Onboarding
By adjusting their onboarding processes financial institutions can enhance their client experience, reduce costs and pave the way for new cross border services, explains Stephan Wolf, CEO, Global LEI Foundation
Author: Stephan Wolf
It’s no secret that regulatory compliance doesn’t always sit comfortably with a bank’s desire to deliver a smooth, hassle free user experience (UX) for its clients. The job of onboarding a new corporate client is a key case in point; extensive anti-money laundering (AML) and know your customer (KYC) checks mandated by regulations like AML5 typically require more back and forth than either the financial institution (FI) or the client would like.
For the FI, its client onboarding UX is only part of the problem. To ensure compliance, internal processes have necessarily become both granular and time consuming, reducing internal efficiency and inflating costs as a result.
As legal entities, clients that perform financial transactions in capital markets are mandated by various regulatory bodies across the world to have a Legal Entity Identifier (LEI) for reporting purposes. By doing so regulators are able to paint a clear picture of who is involved in their markets, thereby enabling more effective risk management. To date FIs have not broadly adopted the LEI to improve their portfolio surveillance and in this respect are a step behind reglators in realizing the benefits from LEI adoption.
Until now, the process of obtaining an LEI is most commonly undertaken when an entity is onboarded by their FI, and has required the entity to liaise directly with an LEI issuing organization, thereby repeating many of the onboarding processes the entity just undertook. Considering that for many clients obtaining an LEI is a legal requirement, this process duplication can create frustration.
To enable FIs to overcome these challenges and realize a variety of onboarding cost, efficiency and customer experience benefits, the Global LEI Foundation (GLEIF) has created a new operating role for banks in the LEI issuance process, called the Validation Agent.
Introducing the Validation Agent Framework
The Validation Agent Framework empowers banks to leverage their KYC, AML and other regulated business-as-usual onboarding processes, to obtain an LEI for their customers during initial onboarding or a standard client refresh update. In other words, banks acting as Validation Agents can liaise with the LEI Issuer on its client’s behalf to ‘validate’ key identity data, such as the legal name and business registry information, confirming that these checks and processes have already been performed.
Enhanced customer experience and market differentiation
A bank in the Validation Agent role can benefit from a greatly streamlined and cost-effective LEI issuance process for clients, resulting in a faster and more convenient client experience in onboarding and lifecycle management. The removal of process duplication also means less time and resource investment needed from their client which, ultimately, reduces the time to trading revenue.
By acting as a Validation Agent, banks also have additional opportunities to add client value and achieve market differentiation. They have, for example, the chance to pioneer new, revenue-generating digital services in areas enabled by the LEI – from corporate identity management to legal assurance level e-signing with digital certificates.
Leading the way in identity management
Although the Validation Agent Framework will initially appeal to FIs seeking to streamline regulatory compliance processes for their clients, the role is designed to foster broader appeal among banks and to encourage voluntary LEI adoption outside of capital markets.
Validation Agents can leverage the LEI and eliminate manual linking of entity data from disparate internal and external sources. McKinsey estimates that this alone would save the global banking industry $2-4 billion per annum by improving full time employee productivity in client onboarding.
By expanding LEI issuance beyond legal entity clients that require an LEI for financial compliance, a Validation Agent can equip its whole business client base with globally recognized identities, which can be used across borders with any legally registered counterparty or supplier around the world.
In this way, FIs can use the LEI to solve the problem of cross border trust for their clients worldwide. It is the only open, commercially neutral, standardized and regulatory endorsed system capable of establishing digitized trust between all legal entitles, everywhere. As awareness of these enabling attributes increases, the Validation Agent role is also likely to be assumed by banks seeking to become recognized leaders in identity management, positioning themselves as facilitators of global trade.
What’s more, if the LEI becomes more prominent and available in AML reporting then regulators, in particular across borders or jurisdictions, will be better equipped to identify and trace illicit financial behavior, which in turn protects both businesses and the general public.
Any FI that serves legal entity clients may apply to become a Validation Agent. GLEIF is actively engaging with the global banking community to support trials of the Validation Agent Framework and invites FIs to enquire about participation within the trial phase.
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Stephan Wolf is the CEO of the Global Legal Entity Identifier Foundation (GLEIF). In 2023, he was elected as a member of the Board of the International Chamber of Commerce (ICC) Germany. In 2021, he was appointed to an all-new Industry Advisory Board (IAB) as part of the global ICC Digital Standards Initiative (DSI). In that capacity, he serves as co-chair of the workstream on ‚Trusted Technology Environment‘. Between January 2017 and June 2020, Mr. Wolf was Co-convener of the International Organization for Standardization Technical Committee 68 FinTech Technical Advisory Group (ISO TC 68 FinTech TAG). In January 2017, Mr. Wolf was named one of the Top 100 Leaders in Identity by One World Identity. He has extensive experience in establishing data operations and global implementation strategy. He has led the advancement of key business and product development strategies throughout his career. Mr. Wolf co-founded IS Innovative Software GmbH in 1989 and served first as its managing director. He was later named spokesman of the executive board of its successor, IS.Teledata AG. This company ultimately became part of Interactive Data Corporation, where Mr. Wolf held the role of CTO. Mr. Wolf holds a university degree in business administration from J. W. Goethe University, Frankfurt am Main.