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Client Lifecycle Management (CLM) is the process of bringing a new customer (or portfolio of customers) in to the firm and then the relationship activities, operational processes and due diligence involved in on-going work with the customer.
The purpose of this paper is to examine the CLM space in relation to new technology and innovations which have been developed in recent years. The paper focuses specifically on the over-arching CLM processes and the detailed Know Your Customer (KYC) processes which form part of that. Other areas of COB and CLM such as credit, documentation and account opening are referenced, but not studied in detail.
Effectively managing the life cycle of a client relationship will reduce the overall costs of maintaining those relationships and the efficiency of initial on-boarding might be the difference between winning a deal or not. At each stage speed and efficiency must be balanced against effectively conforming to regulatory requirements. Regulatory KYC checks (including Sanctions, Enhanced Due Diligence, Screening, etc) are a costly but necessary process all financial institutions and other regulated firms, such as Estate Agents and Law firms, need to deal with. In the last 10-15 years the financial services industry has tried a number of initiatives such as off-shoring and KYC utilities and yet the KYC and CLM process is still generally inefficient and costly. More recently a number of interesting technology plays have started to emerge and are getting a lot of attention. In order to design and implement a successful KYC & CLM Target Operating Model there are a whole range of inter-linked considerations firms need to take into account. This paper considers:
- Hub & Spoke
- Centres of Excellence
- Partner companies
- KYC Utilities
- Hybrid model
- CLM Platform
- Data Aggregation
- Global operating model
- Multi-party processes
- Data governance
Most firms now deploy a hybrid model for CLM and KYC being a combination of two or more of the models below: • Model 1 – do it all in-house • Model 2 – out-source some or all of the processing bi-laterally • Model 3 – utilise data and services from KYC utilities as effectively as possible • Model 4 – create regional utilities with similar banks to address client segments not covered by utilities.
This paper considers the factors involved in successfully implementing a successful CLM operating model.
The economics of KYC utilities are that to reduce costs for customers, they need to build a KYC file once and then sell it multiple times. Unfortunately the larger multi-banked firms in many cases tend to be the lower risk, easier ones to KYC and a lot of the data is available publicly. The higher risk firms tend to be smaller, more private, harder to KYC … and single-banked. Thus the commodity the KYC utilities are most able to build only solves part of the problem their customers face.
If the 2000s was the decade of off-shoring and the mid-2010s the period of KYC utilities, the focus is now firmly shifting to technology and more effective data and process management.
Lysis Financial operates CLM and AML Innovations Labs from its London Operations Centre which has allowed the firm to carry out sandbox testing of real use cases and to develop process innovation relating to CLM and KYC. This research has played a key part in the development of this paper.
A CLM architecture has competing requirements:
- Relationship data in the front office
- Related customer legal entity data on which due diligence must be done.
- Related customer accounts in multiple systems.
- Data and banking secrecy rules.
- Global operating model and local jurisdictional requirements.
The process, systems and data architecture required to support a global financial services firm with its CLM requirements is complex and the global governance of such an architecture is difficult to get right. In addition increasingly complex regulation means that most financial services firms are seeing the speed of client on-boarding drop to painfully low rates and the productivity in their CLM teams decline dramatically. Processes such as data gathering, PEP, sanctions and bad press screening and enhanced due diligence are particularly slow. This concluding parts of this paper examine some of the factors involved in the slow down of these processes and the technology solutions that might reduce the burden.