Study: Data problems hurt banks’ compliance with new regulations

Financial Institutions Having Difficulties Adapting to New Regulations

After the financial crisis, new regulations in the U.S. and around the world began forcing banks to rethink the way they handled customers. Between Dodd-Frank, new qualified mortgage requirements and Basel III, it seems unlikely that this environment of increased scrutiny and changes in the industry will disappear soon. However, banks do have control over how they prepare for these and other future regulations. A white paper published by Fenergo and Knowledgent this month found that a lack of quality data systems were hurting financial institutions, keeping them from easily complying with new industry regulations and achieving a strong customer onboarding process.

“Client Onboarding: Solving the Challenges, Maximizing the Opportunities” studied 17 top tier financial institutions, and their respective wealth management, international trading, sales and other services. The study found that many banks were having trouble adjusting to the new regulations as a result of a lack of transparency and poor data quality.

According to the report, 70 percent said they considered their inability to cross reference and link clients and accounts as one of their top concerns. Many of the institutions said that they used multiple data systems, which makes it harder to verify or access information, and 69 percent said inconsistent cross-reference IDs was a common pain point.

Further, “54 percent cite the changing regulatory environment as a major concern, preventing the onboarding process from adapting and implementing new rules quickly and efficiently.”

The white paper also found that a lack of strong data systems affects client onboarding and customer service. With inaccessible or inaccurate client data, many found that repeated requests for information from clients were “souring” their relationship during the onboarding process and hurting overall customer experience. Additionally, about one-third said customers reacted negatively to the lack of transparency between documents, which may be an effect of low-quality data systems. Nearly half of respondents – 47 percent – also said that lack of a client onboarding tool kept them from providing strong customer services.

Often, financial institutions don’t invest in the technology for client services, and instead employees helping customers are often relying on minimal information. This “under-funded, technology-lagging, spreadsheet-driven process” can often hurt not only the relationships between employees and their clients, but also the company.

However, there are ways to change this. With case management software, banks can keep better track not just of data, but of other information to help employees work with customers.

“Taking a closer look at the results, we see that most of the issues are interlinked, arising from a few underlying core challenges,” James Follett of Knowledgent said, in the report. “Automation of the client onboarding function can help to cure many of these pain points by increasing transparency across functions and technologies, enhancing visibility into client profiles (including data and documentation) and improving data quality and inter-institutional data sharing.”

Often, credit and risk management software is used by banks to make better decisions regarding borrowers and lending – the base of any financial institution. But it’s clear from this report that these tools, along with data integration software, can help banks and other lenders in more ways as well. By having data easily accessible through stronger data software, financial institutions are able to more efficiently adapt to new requirements and standards. At a time when federal and global regulations and the punishments for not complying are becoming stricter, investing in data aggregation software will only become more important.

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