Legal Entity Requirements Hit Capital Markets11.01.2013
The deluge of coming regulatory requirements in the capital markets sector will have a direct impact on the maintenance of client and counterparty data and onboarding processes, according to a new report published by Aite Group.
The report is based on one-to-one interviews with individuals responsible for client data support, onboarding, or Know-Your-Customer (KYC) compliance at 10 capital markets firms during Q3 2013.
Although all respondents indicate that legal entity data is a “high priority,” almost half are dealing with workarounds such as a patchwork of downstream systems or client databases stored at the desk level.
The majority of respondent firms either have definite plans for or are considering investment in a client data hub in order to provide a single point of access to client data and a consolidated view of a client across the enterprise.
“There is certainly a compelling case for investment in a centralized hub for legal entity data management. Rather than engaging in multiple tactical firefighting exercises, capital market firms should help themselves and react to incoming requirements armed with a strategic framework for the consolidated reporting of client and counterparty data,” says Virginie O’Shea, senior analyst in institutional securities & investments at Aite Group.
The CFTC Interim Compliant Identifier (CICI) utility, an interim global legal entity identifier (LEI) system developed by Depository Trust & Clearing Corporation (DTCC) in collaboration with Swift was endorsed last month by the Regulatory Oversight Committee (ROC) as a pre-Local Operating Unit (LOU).
According to a notice posted on the Commodity Futures Trading Commission’s website on Thursday by John Rogers, chief information officer in the CFTC’s Office of Data and Technology, the ROC has approved the CICI Utility as a globally acceptable part of the interim global LEI system, and approved the LEIs issued by the CICI Utility as globally acceptable LEIs.
The CFTC said in June 2013 said that registered entities and swap counterparties can comply with the LEI requirements of the Commission’s swap data recordkeeping and reporting regulations by using any LEI endorsed by the ROC as globally acceptable.
The CFTC Interim Compliant Identifier (CICI) utility, which was launched by DTCC and Swift in August 2012, creates and assigns unique identifiers to any financial organization that engages in a transaction, and stores and validates the accuracy of the associated reference data.
Currently, there are more than 80,000 CICIs issued to legal entities from over 140 jurisdictions, all of which are eligible for reporting to trade repositories registered with the CFTC and now with the global acceptance endorsement by the ROC, to repositories in many other jurisdictions.
The majority of respondents to the Aite Group survey currently tackle onboarding and KYC separately but are planning to consolidate the gathering of data for both functions under the responsibility of a single team. The driver for consolidation is to have a single team focused on gathering the required documents and data in a consistent manner across the business line or enterprise, thus ensuring the uniformity and reusability of this data.
Moreover, the due diligence checks required for clients classified as “high risk” can extend the onboarding process from hours to months. Respondents indicate that if KYC has already been carried out, then a new account can take 30 minutes to be onboarded; if not, the process can take several days or even several months.
Aite Group found that making the client onboarding and account management process as painless and seamless a process as possible could prove the difference between keeping and losing a client in a time of increased competitive activity.
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