Here are the 5 main sources of onboarding-related threat to your financial institution in 2022, and here’s what to do about them.
THREAT NO.1 Boredom
SOLUTION Poka-Yoke
You might scoff, but boredom is the enemy of productivity. A whopping $1.8 trillion is estimated to be annually lost to repetition in the US alone, according to data from CIO Insight, as “workers spend on average 520 hours a year (over one day of work each week) on mundane tasks that could easily be automated.”
Repetitive tasks do not just waste employees’ time; they also make them prone to mistakes. In financial services, especially in the client onboarding stage, even a single mistake can be very costly (ask NatWest, who is bound to pay up to GBP 300 million for mishandling one client).
Japanese car-giant Toyota had the same problem with mistakes in repetitive processes in the 1960s. To tackle the problem, it developed a method called Baka-Yoke, or “idiot-proofing” (the name was later toned-down to PokaYoke, which derives from a term that means “avoiding a bad move” in Japanese board games).
The goal of Poka-Yoke is simple: minimise the possibility an employee will make a mistake. The methods for achieving this goal vary greatly, from designing a process that does not allow the worker to continue to the next step of manufacturing, to creating cross-checks laden, redundancy-plentiful processes to ensure task completion.
But the absolute best method to ensure a human will not make a mistake due to repetition is to automate that task.
This is true of all jobs that have repetitive tasks; and it is also true when it comes to client onboarding, which is filled with such tasks due to the strict regulations obliging the collection of certain documents, answering of certain questions etc.
Contrary to what many compliance officers and onboarding teams may sometimes fear, automating the repetitive part of their work does not make them redundant. On the contrary – it actually allows them to concentrate on the more interesting and fulfilling sides of their roles – the ones they simply didn’t have time to do before, when they were drowning in paperwork.
Or, as McKinsey & Company put it in their paper “Five actions to build next-generation know your-customer capabilities”, automation creates a new state of affairs in which “relationship managers can focus on the moments that matter instead of chasing documents,” and adds “enormous value across a wide spectrum: cost, risk effectiveness, revenue, customer experience, and employee experience.”
Meaning, when you improve the process, you improve everything connected to it, including the employees’ experience. And the way to improve on bored, swamped with repetitive tasks and therefore mistakes-prone employees, is to save them the handling of those repetitive tasks, by automating them.
THREAT NO.2 “Professional Retail Clients”
SOLUTION Don’t Hurry to Upgrade a Client
Short positions can sometimes be a part of a long-con.
Think of the following situation: a client, who is by all definitions a retail client, is classified as a professional client. This situation, one would think, is to the detriment of the client – as they now generally lose some important legal protections, and also, in many cases, end up dealing in instruments which are not suitable for retail clients.
However, there are some clients – we call them “professional retail clients” – for whom this situation can actually be a benefit. This very specific type of investor knows how to manipulate compliance officers into categorising them as professional investors (a not-so-difficult task, considering some compliance officers’ keenness to do so), even though according to MiFID (or similar legislation), they shouldn’t be classified as such.
Once such a client is mis-classified as a professional investor, they’re basically “playing with house money”, and can invest in the riskiest of instruments. After all, what do they care – if their investments turn out to be profitable, they will get to keep the profits; and if they fail, they will initiate a complaint process, at the end of which they are almost certain to be granted their money back.
It’s a growing trend, and investment firms can only blame themselves if they find themselves in such a pickle. All one needs to do to avoid this situation is categorise their clients correctly – a task that also can be performed automatically by Muinmos’ regulatory onboarding engine, mPASS™.
THREAT NO.3 Falling Behind in the Arms-Race
SOLUTION Outrunning the Other Guy
In the famous joke about the two men walking in the jungle and all of a sudden spot a lion running towards them, the one man starts running away from the lion. The other man turns to him and says: “What are you doing, there’s no chance you’ll outrun the lion!” To which the first replies: “I don’t need to outrun the lion, I only need to outrun YOU.”
This is the perfect example of a race, a person loses simply because of not being aware of participating in one. We see many financial institutions who do that – fail to appreciate the importance of getting a headstart of several minutes / hours / days that a good client onboarding solution can provide them.
And that’s surprising, given the fact that onboarding has become such an important part of the user experience it’s even one of the main parameters online trading platforms are judged upon on trading platforms comparison sites. It’s even more surprising as there’s an actual arms-race out there, a race in which online trading platforms are competing to see who will arm themselves with the best onboarding tools and provide the smoothest, fastest customer experience.
And this also brings us to the solution to this threat – having a smooth, fast client onboarding process. This can be achieved, of course, by use of a client onboarding platform, which is as automated and centralised as possible, allowing the onboarding teams to always move forward in the process, rather than sideways between different platforms, websites and systems.
THREAT NO. 4 Whistle-blowers
SOLUTION Stay Compliant
This one is a no-brainer.
Quite recently Deutsche Bank paid a $2.5 billion fine for illegal manipulation of the Libor. No less than $200 million of that went not to the authorities but to a whistle-blower who provided “timely original information” that significantly contributed to the “already ongoing investigation”, as the CFTC put it.
This came shortly after the SEC awarded $110 million to another whistle-blower, breaking the previous record in this area, held by the SEC, of $114 million, set at the end of 2020.
All in all, in 2021 over $1 billion were distributed to whistle-blowers in the US, but the trend isn’t limited to the States. In March this year the FCA launched a campaign called “In Confidence, with Confidence”, which includes a “digital toolkit” designed to help whistle-blowers come forward. Yes, exactly – the FCA is digitising its online onboarding of whistle-blowers.
Now, unless you intend on remunerating all your employees in the millions of dollars, the only real solution for this threat is to simply comply with regulations. RegTech tools that automate onboarding, and keep a neat audit track, can help you with that.
THREAT NO. 5 “MiFIDation” of Crypto, Payments
SOLUTION Set the Infrastructure Already Today
Earlier this year the EU published a briefing by the name “Updating the Crypto Assets Regulation and establishing a pilot regime for distributed ledger technology” in which it briefed, among others, that “the markets in crypto assets (MiCA) proposal intends to adapt to the latest technological trends in the fintech sector and to address the problem that all crypto assets do not fall within the existing markets covered by financial services legislation in the EU (also known as MiFID II).” Under the “range of options considered” by the EU, according to the briefing, were also “options for crypto-assets qualifying as financial instruments under MiFID II”. One of these options was even “legislation free”, meaning, that certain crypto assets will be classified as securities by power of the Commission and ESMA communications and guidelines alone.
This is another clear sign that onboarding regulations in the crypto sector – and possibly the payments sector as well – are likely to tighten in the near future.
This requires organisations to lay the foundations for a MiFID-like onboarding process. This should affect, of course, the choice of providers already now – no point choosing a client onboarding platform that does not have the capability to perform MiFID II like onboarding, because it might require replacing in a year or two.
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