Client outreach is a term used by financial institutions, and other regulated entities, to describe requests to customers and prospective customers for information to be used in due diligence.

This can include the completion of questionnaires and the submission of documents, for example, articles of incorporation, lists of directors and passports. This information allows the financial institution to fulfil their regulatory obligations by establishing the individuals who are beneficial owners of corporate customers, and to assess the money laundering and terrorism financing risk they pose.

Many regulated entities organise their staff so relationships with customers are managed in the front office, where agreements to provide access products and services are made, while Know Your Customer (KYC)  processes such as due diligence are undertaken by specialists in the middle office.

Today’s manual processes make the work of gathering information onerous and time consuming. When faced with difficulties finding the right information, KYC analysts will push their problem back to the front office, asking their customer relationship colleagues to approach the customer and request that they provide information needed for due diligence.

Outreach is detrimental to customer relations

By nature, due diligence is iterative; one newly discovered fact creates a need for more information. This is particularly true when researching the ownership of companies with complex structures that span jurisdictions. Regulated entities that rely on customer outreach as the normal process for gathering this information cannot offer the customer experience that we have come to expect today, and will create a reputation for themselves as offering poor customer service.

The process of opening a new company account, or accessing a new service from an existing provider, can drag into weeks or months. Customers become increasingly frustrated when information they have already provided  about their company’s ownership results prompts requests for further information, rather than the opening of an account. Instead of fulfilling their primary role of building positive relationships with clients, customer relationship staff are met with resentment and are put at risk of being perceived as the face of poor service.

ebook

Ultimate beneficial ownership

Exploring ultimate beneficial ownership and its role in laundering illicit funds

The cost of outreach

The longer it takes to complete outreach, the greater the delay to the institution onboarding a new customer, which delays time-to-revenue and leads to tensions between front and middle office.

The pressure on KYC teams to make faster decisions can put the institution in the risky position of establishing a relationship with an entity before full KYC has been completed, leaving potential risks uncovered.

The time it can take to access new financial products and services often means that businesses will start multiple applications and end up giving their business to the institution that can onboard them most quickly. In fact, 38% of businesses polled by Encompass in 2020 had deliberately abandoned an application for banking services in the last year due to slow processes.

What do the regulations require?

The recognised risks of shell companies and trusts led to enhanced requirements for identifying and verifying Ultimate Beneficial Ownership under the EU’s Fourth Money Laundering Directive (4MLD), as well as the requirement for all EU member states to maintain a register of beneficial owners. In the UK, Companies House introduced the People with Significant Control register, a good first port of call for compliance teams.

In the United States, the Financial Crimes Enforcement Network’s (FinCEN) final rule on Customer Due Diligence (CDD) Requirements for Financial Institutions, came into force on 11 May, 2018. Under the Final Rule, covered financial institutions are required to have written procedures to identify and verify beneficial owners of legal entity customers who open new accounts.

In Australia, AUSTRAC requires that regulated entities identify the beneficial owner, collect relevant information and take reasonable measures to verify using reliable independent documents and electronic data. Outreach to clients asking that they provide information used in due diligence is not sufficient to satisfy the regulations.

Each institution will interpret regulations into their own policies and procedures, and design internal processes and checklists for the types of documents and evidence to be collected before the operations department can sign off on onboarding a customer. While the breadth and depth of these processes and checklists can vary from institution to institution, and within an institution from jurisdiction to jurisdiction, the requirement to collect core documentation is universal.

How Encompass helps

Our customers radically reduce the role of outreach in their KYC operations. As many documents needed already exist in the public domain, e.g. at national Corporate Registries, the Encompass platform can simply collect them directly, which means, for companies with simple ownership structures, Encompass finds all UBOs, removing client outreach completely. For those with more complex ownership structures, Encompass successfully identifies the UBOs for 75% of entities, dramatically reducing the need for outreach to only one in every four entity investigations.

The iterative fact finding nature of due diligence is mirrored by policies that drive our intelligent automation with Encompass. We employ conditional policy logic to reflect each customer’s unique requirements and their preferred information sources. A search for information starting at one information source (for example, BVD or D&B), will drive follow-on searches to registries and other trusted sources, until UBOs of the target entity are identified, with the automatic creation of a dynamic audit trail with data attributes, source documents and a record of every action taken along the way.

This transforms a due diligence operation that previously took weeks to complete, created frustration in the front office and earned the resentment of prospective customers – and to the satisfaction of regulators.

The goal of a modern due diligence operating model is for outreach to be the occasional exception and not business as usual. Intelligent automation is proven in supporting this goal.

Instead of putting relations with the front office at risk, the middle office can support sales professionals charged with acquiring new revenue streams, from either existing customers or newly acquired customers, through faster and more effective onboarding. Additionally, when the results of thorough due diligence undertaken by Encompass are shared with the front office, they give sales professionals new insights and understanding of customers which uncover new revenue opportunities.

 
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  • Thank you Cheri for sharing these resources! I hope it'll be beneficial to many experts in our community.

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