Transforming - IB Client Onboarding

The paper puts a spotlight on the Investment Banking onboarding process. It provides a fairly detailed insight into key issues, causes and effects &

focuses on the various strategies at the disposal of stakeholders to address the issues and discusses high level solutions that can be deployed with a

brief on the benefits

A fresh perspective on issues and Strategies to transform IB client on-boarding

Table of ContentsExecutive Summary.....................................................................................................................................2

Scope of the Paper..................................................................................................................................2

Defining Onboarding in Investment Banking (IB) Context.......................................................................2

Operational Complexity:..............................................................................................................................3

Issues that Plague IB Client Onboarding:.....................................................................................................3

1. Drop-out rates / Request terminations...........................................................................................4

A point in case:....................................................................................................................................4

2. Long Time to Onboard.....................................................................................................................5

A point in Case.....................................................................................................................................5

3. Numerous Hand-offs with clients/ requestors: lack of response from them...................................6

4. Lack an Overarching Team or IT system:.........................................................................................6

A Point in case.....................................................................................................................................7

Effects:.........................................................................................................................................................8

Key Considerations Prior to Change............................................................................................................8

Strategies and Solution Framework:............................................................................................................8

High Level Solutions Based on Pure Process Improvement Strategy...........................................................9

Creation of an overarching/ central Team as a single Entry point...........................................................9

No Chasers; Instead the in-flight requests will be taken up for discussion..........................................9

Upfront identification and reduction of potential drop outs...................................................................9

Tactical workflow system & overarching Unique Reference for each request......................................10

Consolidation of Touch points into central team equipped with Rules Engine.....................................10

Clear road map for each scenario and standardized Routing................................................................10

Introduction of Parallel Processing........................................................................................................11

Impact.......................................................................................................................................................11

Credits.......................................................................................................................................................11

Bibliography...........................................................................................................................................11

Executive Summary The onboarding process provides a realistic introduction to a bank’s or a financial institution’s operational capabilities. These capabilities become a gauge of what to expect from a financial partner over the life cycle of the relationship. Like any other process, on-boarding has its own set of problems.

The issues around onboarding process can be best summarized as:"Client onboarding is a largely manual, error-prone, time-consuming, expensive, incomplete, and ineffective process. A large, Tier 1 bank can spend more than $100 million a year on client onboarding, when you take into account the information technology and operational considerations. Yet the process largely remains manual, error prone, time consuming, and risky in terms of compliance with global regulations and the client experience" – Bill Cline, KPMG1

This process rarely gets the attention needed and is evident from the staggering 80% - 90% client drop-out rates during the lifecycle, longer lead time & numerous touch-points with clients. This has overarching effects with dissatisfied customer impacting reputational & financial losses along with higher operational cost.

Scope of the Paper While there is enough literature available on on-boarding process of retail banking, wealth management and client on-boarding in general within a bank, there is little focus, and literature around the Investment Banking specific on-boarding process. This paper addresses the gap & unravels the onboarding process for Investment Banking( excludes- Advisory or Prop House trading side of business), provides a fairly detailed insight into key issues, its causes and effects & provides strategic & tactical solutions that organizations can adopt to address those issues. Leveraging experience of transforming the onboarding process at a large multinational bank hereby referred to as ‘The Bank’ with operations across the world. The key broad topics that will be covered in this paper include

Key Issues plaguing the IB onboarding process & the magnitude of the problem. The various strategies that can be leveraged to address the issues Highlight & focus on how a seemingly cash burning overhead process can be transformed in to a competitive advantage

in market.

Onboarding process - Investment Banking (IB)This section provides an overview of high level onboarding steps within onboarding in Investment banking (excludes - Advisory and Prop house trading side of business) .While some of the terminology is specific from The Bank, the terminology is fairly standard.

The broad stages and steps can be described as below Receipt of Request - Activities pertaining to receipt, capturing and assessment of request

1 Cline, Bill, 2014, Transforming Client Onboarding, https://www.google.com.sg/url?sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&uact=8&ved=0ahUKEwi70-yXz8PPAhXKrY8KHf3SBGAQFghCMAM&url=https%3A%2F%2Fwww.kpmg.com%2FUS%2Fen%2FIssuesAndInsights%2FArticlesPublications%2FDocuments%2Fkpmg-client-onboarding.pdf&usg=AFQjCNEtLxktUJZD0p38ugX14XBJzpHbYg&bvm=bv.134495766,d.c2I, Pg3

Receipt of Request

Request assessment KYC Review Credit Review

Legal Negotiation

A/C creation including Tax Onboarding

Configuration in Trading, booking systems

Receipt of Request Client Review and Set-up Configuration

Client Review and Set-Up - Vetting activities and opening of Accounts for the client Configuration – Setting up the client in various downstream systems to enable the client to trade

Operational Complexity:Some factors that compound to the operational complexity around the IB on-boarding process are: On-boarding scenarios with multiple input variables

o Existing Relationship and the scenario – No relationship i.e. New client, Existing client requiring New A/C, New o Entitlemento Entity typeo Domiciles/ Country of incorporation of client,

Fund and o Sales locationo Products to be traded o Asset classo KYC Risk categorizationo Regulation Status/ classificationso Booking Entity

o Settlement typeo Disclosure statuso Type of Legal agreemento Type of configuration requestedo US person or noto Credit By-pass applicabilityo Types of configuration systems the client is

requestingo Legal hierarchyo Other non-master arrangements required such

as the clearing arrangement o For cleared derivatives, master confirmation agreement

Multiple teams spread across various time zones in the F2B process which transpire into numerous sub-processes. This drives the number of touch points with multiple handoffs, dependencies, referrals and also ownership and accountability challenges

The maze of AML/ KYC requirements regulatory compliance standards, tax compliance standards as applicable ,

An example of the complexity involved - A US client's European subsidiary requires to on-board a new fund and will be trading in OTCs APAC, the onboarding could potentially involve a common bank-wide vetting standards and local vetting standards in APAC. The regulatory standards applicable could be Dodd Frank, EMIR, and Volcker categorization. Trade reporting standards to comply to could be MiFiD, MAS/ASIC. From the tax perspective FATCA, AEI could be applicable. Determining the applicability, classification and obtaining the relevant documentation in support of it adds additional dependencies to the process.

Note: The Front-to-Back / ‘F2B' process here refers to the entire process: starting from the point when a requestor places a request for onboarding through the point when client is ready to trade.

Issues plaguing IB Client Onboarding:Although there are multiple problems we deal with some of the major ones here:1- Drop-out rates or request terminationsA client drop out in the context of on-boarding is a client request being terminated at any stage of the on-boarding process & is one of the biggest challenges. The Exhibit 1 gives a view of this waste that is present in the on-boarding process across the Industry. The exhibit is an illustration & a result of a sample study of clients that were on-boarded in "The Bank" in 2014, depicting the % of client requests not progressed forward at key stages, as you can see from the illustration, a staggering 92 % of the onboarding requests received never end up trading. This results in wasted effort of the various teams involved in the onboarding. The effort wasted depends on which stage the client dropped.

Analyses of some of the causes that impact this high drop rate are as follows 1. Lack of engagement from sales team2. Lengthy onboarding process3. Multiple touch points with clients & a lack of response from them

Industry Problem?

The problem of client drop out of request terminations is not specific a particular bank or Investment Banking alone, but it is a problem within the entire ecosystem. In a survey conducted with 211 wealth managers in 2014 (Bolstad et al, 2014) , it was found that a good two-thirds of the wealth managers had varying degrees of concerns a good two-thirds of the wealth managers had varying degrees of concerns with regards to client dropping out during the onboarding process.

Exhibit 1

*Source: The Bank, based on sample study

1. Long Time to Onboard

The time taken to onboard is long drawn and can range from a few hours to a few days & even months. This time to on-board depends primarily on client scenario reflecting the relationship of the counterparty with the Bank. Some of the know client scenarios are as outlined below New Client onboarding: No existing relationship between The Bank and the counterparty. This has the highest lead time

as it involves going through all the steps of on-boarding. Existing Client - New fund onboarding: The counterparty is already a client for The Bank but would like to onboard a new

fund which would trade with The Bank. Existing Client - New Entitlement onboarding: Here the purpose of onboarding is to add an additional client / additional

contracting entity. This is the fastest and consumes the least time.Exhibit 2 presents the result of a sample study of 139 cases in The Bank for OTC product where the Turn-Around-Time (TAT) was found to be 148+ days. The detailed process-wise break up can be seen below:

60Requests processed by KYC, 40% drop out rate due to no response from FO/client

50Requests processed by Credit

40Requests processed by Legal and A/Cs created

8 Clients trading IB products

100Requests to onboard a client are sent to KYC to perform AML tasks

Clients’ requests not progressed due to lack of client engagement, no follow-up from FO

Clients not progressed due to lack of client engagement or no agreement with client or depriooritr

Clients not progressed due to lack of client engagement or de- prioritization

Four fifths of the Clients on-boarded do not trade with us

40 10 10 32

Analysis of Client Drop outs (requests not progressed) for IB client in 2014*)

ProgressedProgressed Progressed

Progressed

Clients Drop-Out

Clients Drop-Out

Clients Drop-Out

Clients Drop-Out

CAUSE

Exhibit 2

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New client Onboarding processes Existing Client Process: Account Set-up and client configuratipon processes

Note: The results are not a based not tracking a single request end to end as it is not a very common scenario for brand new Agent getting on- boarded; but this is based on samples collected from different stages and aggregating them to provide a full picture of entire on-boarding cycle.

Legal and KYC have the longest lead time as seen in the exhibit The root causes for typically a long TAT around KYC and more so with Legal is the following: KYC process - Involves various global and country standard specific checks which are normally put through a pipe which is

generally clogged with huge volumes of periodic KYC reviews; Legal process - Negotiation of master agreement ISDA in the case of OTC is time consuming; Some of the clauses which are

risky needs to go through approval process of a wider group including group treasury, Credit Legal counsel etc.

For both the processes, there are multiple touch points with clients or sakes with interdependencies leaving scope of waiting time and longer TAT. There are other challenges of data gathering with has dependency on front office/ clients response

2. Hand-offs with clients & lack of response from themThe following Exhibit 3 is an illustration of all the possible touch points with Client for a new client onboarding process. In certain cases the Sales/FO or middle office might mediate the contacts with client hence, the client broadly represents the requestor group.

Causes impacting this multiple touch points are Lack of expertise within one team with respect to documentation requirements Lack of a standard process / guidelines on list of documents required by the different teams Lack of response from requestors due to conflicting priorities, lack of appropriate client contacts, turnover of Sales etc.

Break-up of TAT (Turn Around Time) in number of Days (OTC)

3. Lack an Overarching Team or IT system:The onboarding process in an IB world involves numerous stakeholders performing specialized activities, there is no single overarching workflow that can host/ track or facilitate the F2B process and no single team which can anchor the request end to end.The Exhibit 4 below is an illustration below is a spaghetti diagram of The Bank.

Some Key observation that can be made from the above analysis:

Multiple touch points leading to huge referral percentage thereby increasing the Waiting time and turnaround time. Lack of connectivity between systems resulting in requests and data not flowing from one system to another leading to

manual routing and data entry. Systems working in silos reducing visibility and transparency Lack of a unique request ID

In summary, the on-boarding has issues that many banks/ financial institutions grapple with. However, it is important to note that an understanding of domain and the context is very important aspect of providing a solution to address the issue. The subsequent sections will details on the key considerations and solution that can address some of the systemic problems of the on-boarding process of Investment banking.

Getting ready for the transformation Journey Prior to setting out on a transformation journey the following considerations need to be take care Objective of Change: The objective of change has to be established before embarking on the change journey. The

objective could be to bring about incremental change or also a big IT change to bring in a platform to integrate the disjoint systems.

Timeframe: A quick Kaizen exercise to identify low hanging fruits will have a very different timeline to an IT transformation project involving Process re-engineering.

Budget: Most long lasting changes need time & hence a higher budget to implement, institutionalize & make the change operational.

Source: The Bank

A Spaghetti diagram of the onboarding process along with system flows)

Impact of ongoing change / regulatory projects: There are usually multiple ongoing projects ( regulatory and others ) within the same scope and the impact of those need to be evaluated.

Exhibit 5

Solution - Strategies and Solution Framework:

The exhibit maps the Degree of focus of the magnitude of change required with the improvement focus methods used on the Y axis

Creation of a central team as a Single Point of Entry for all requests Lack of ownership & accountability for the request at different stages is a major issue leaving a vacuum between departments & impacting the wait time between the 2 teams and steps in the process. An overarching team called " Case Management" was created by centralizing the routing for account creation as an overall owner of seeing the request through the entire life stage. All cases would be routed through this team & it will become the face for requestor group , responsible for obtaining documents that are requested from downstream teams (Example: CRC, Legal, ticket creation team, KYC team not to process a request unless routed through this team ). This addressed the issue and had the following advantages

o Established a clear owner and accountability for the requesto Became a "Single point of Entry" for all requestso Enabled easier tracking and follow up on the requesto Any breaks in flow were quickly picked up and the request would be pushed through subsequent stages

Creation of a Governance Framework to highlight inflight/ pending cases. Complete stop on Chasers or follow up.

One key design principle for the team was to avoid any chaser by Case management team & only update the progress of request. The MIS captured in the background would give a view of where the bottlenecks are and this would be escalated in the governance forum.

Prioritization Algorithm to address potential drop outs upfront To address the high % of dropout rate the following measures were adopted

Algorithm based Prioritization: A weight was assigned to each request depending on trade date, bulk requests or not, Assets under Management of Fund, expected Wallet share operational complexity etc. An algorithm was then built that would assign a priority in such a way that a constant percentage of High priority, medium priority and low priority is maintained for the pipeline. The lowest priority had to be taken up for review with senior sales executives and about 25% of the requests were dropped as a result.

Upfront approvals in case of frontloading/ bulk requests: There were in-built upfront tagging of requests and any request without clear trading intent would go through an approval process with Senior Sales person, discussed with the client & put on hold if necessary.

Consistent and regular Client Connect: A consistent communication strategy from the Case Management team - Exactly 4 communications with client by the Operations team.

1. Acknowledge the request and confirm/ provide minimum information for taking the request forward2. Request for any additional/ missing documentation (if any) from the client3. Provides a view of the process which the request will go through and approximate view of the timelines4. Final, communication provides a completion of request message , comparing it against the intended trade date

Tactical workflow system & overarching Unique Reference for each requestBased on the availability of SharePoint for creating very light web based portals (with end user access and no customizable permission) a tactical portal was created with the following key features:

• Capture the requests – corresponding documents, information/ attributes• Generate a Unique reference – that will be reference for all teams involved in the onboarding process• Store Documents required for F2B teams

Given the IT system enhancements were out of scope, the unique reference number was passed to respective teams via mails. All the execution teams were provided access to the portal and could leverage the information captured pertaining to request. For every request, a minimum set of attributes were captured which was acknowledged by client. Unless the minimum attributes were captured, the request wouldn't be taken forward.

Consolidation of Touch points into central team equipped with Rule EngineAlthough the requirements in terms of information/ documentation heavily depended on few drivers and are different for each team, their requirements were captured in the form of Rule engine and the Case Managers were trained to use it and obtain the documentation/ information required. A clear strategy was provided in terms of the sources of these documents and reaching out to client was the last resort. The Case manager would face-off requestor group and would obtain any additional documentation required. For any documents/info not captured as part of Rule engine would go through a maintenance process where the requirement would be fully understood and captured as an additional rule.

Clear road map for each scenario and standardized RoutingThe various scenarios and course of action were captured as part of interactive SOPs where any Case manager could easily determine the course a particular request needs to take based on a particular scenario. The case manager team would route (manually) the request to next stage and to get the request Right-The-First time, the requirements of each team were agreed to avoid any referrals. This ensured the Case Manager knows the course of a request and requirements to ensure there is no back and forth.

Introduction of Parallel Processing Most of the processes at The Bank were running sequentially. However, certain aspects of the process were made parallel. For example: KYC and Credit review were made parallel and an agreement made that in case of any rejection, immediate broadcast would be made for all the teams involved by the case management team. Another instance is when Account Creation would not wait for Credit Review to complete, but Credit could reject the workflow ticket in case the request was to be rejected.

ImpactThe following are the anticipated benefits of this project (Quantification of benefits is in progress)

- 25% reduction in the onboarding pipeline volumes: Due to deployment of the prioritization and upfront approval process in case of requests without clear trading intent, a number of requests well either be dropped or be put on hold which results in reduction in Non-Value-Add volumes. For example a bulk request with 100 funds to be on-boarded would be put through approval and Sales would discuss internally and cut down the volumes to 20 funds. These

- 20% reduction in onboarding TAT: Due to parallel processing at certain steps and central team to anchor the request, the governance/escalation mechanism in case of bottlenecks, standardized routing enables reduction in overall TAT reduction

- Minimized Touch points with Client/ Requestor Group: Since Only Case management would perform the client communication and collection of data/docs (supported by Rule Engine) the touch point by all downstream teams were eliminated, which reduces hand-off and provides enhanced client experience

- Increased Right First Time Percentage: Given the route each request needs to trace and the contents of the communication during routing was standardized the referral rates would drop drastically which would boost the Right First Time request

Credits

Bibliography1. Cline, Bill, 2014, Transforming Client Onboarding, https://www.google.com.sg/url?

sa=t&rct=j&q=&esrc=s&source=web&cd=4&cad=rja&uact=8&ved=0ahUKEwi70-yXz8PPAhXKrY8KHf3SBGAQFghCMAM&url=https%3A%2F%2Fwww.kpmg.com%2FUS%2Fen%2FIssuesAndInsights%2FArticlesPublications%2FDocuments%2Fkpmg-client-onboarding.pdf&usg=AFQjCNEtLxktUJZD0p38ugX14XBJzpHbYg&bvm=bv.134495766,d.c2I, Pg3

2. Glenn Bolstad, Paco Hauser, RENÉ HÜRLIMANN, Philip Schoch, Wendy Spires,2014, Converting Compliance in Business Challenges into Business Benefits: Optimizing Client Onboarding in Wealth Management, Wealth Briefing, Pg 12-14

3. “Wealth Management Onboarding: Expanding Beyond Account Opening.” http://www.aitegroup.com/Reports/ReportDetail.aspx?recordItemID=812

Author:

Editor:

About CognizantCognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting, and business process outsourcing services, dedicated to helping the world’s leading companies build stronger businesses. Headquartered in Teaneck, New Jersey (U.S.), Cognizant combines a passion for client satisfaction, technology innovation, deep industry and business process expertise, and a global, collaborative workforce that embodies the future of work. With over 50 delivery centers worldwide and approximately 156,700 employees as of December 31, 2012, Cognizant is a member of the NASDAQ-100, the S&P 500, the Forbes Global 2000, and the Fortune 500 and is ranked among the top performing and fastest growing companies in the world. Visit us online at www.cognizant.com or follow us on Twitter: Cognizant.

Ram Dheeraj Gadiyaram is a Process Re-Engineering/ Analytics Consultant with Operations Change Group of Cognizant with extensive experience in Client Onboarding process. He has 8+ years of experience in driving operations change in IB Client Onboarding, FI/EQ Settlements, and various Wealth Management functions. He specializes in conceptualizing, planning and executing transformational initiatives at global banks including Tier 1 Banks. He is Six Sigma Black belt and holds a Masters Degree in International Business from Ecole Supérieure de Commerce de Grenoble, France.

He can be reached at: mailto:ramdheeraj.gadiyaram@cognizant.com;

Anurag Sharma is an Associate Director within Cognizant Business Consulting’s Strategy Business Process Services Practice. He is currently the EMEA Project Lead for Global Client Lifecycle Management program for one of the largest Investment Banks and driving transformation and change initiatives for F2B Client On-boarding Work stream. He has 14+ years of Process Transformation and Change Delivery Experience working for Global Banking Clients which includes Client On-Boarding, KYC operations and Regulatory Change. Besides Black Belt, he holds an MBA.

He can be reached at: mailto:Anurag.Sharma2@cognizant.com ;

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