Financial advisors for banks and other financial institutions need detailed and accurate information about their clients, but they also need to onboard new clients and process client's requests as quickly and efficiently as possible, according to LexisNexis Risk Solutions.
The better advisors for banks, insurers, and other non-bank financial institutions know their clients, the easier it is for them to recommend the proper products and services, a new report by the company notes.
Interest in increasing transparency in order to understand clients and grow the proper client base is growing among these institutions, according to the LexisNexis Risk Solutions’ 2022 Financial Transparency and Inclusion Report. The report defines inclusion as “the effort to give individuals and businesses access to affordable financial products and services delivered in ways that are both responsible and sustainable.”
The institutions’ advisors are challenged by the need to expedite their work, Leslie Bailey, vice president of business services and financial crime compliance at LexisNexis Risk Solutions, a data analytics firm, said in an interview. Clients today expect their financial institutions to move quickly at the same time that they provide appropriate advice, lower risks, guard against fraud, and make processes as transparent as possible, she said.
“Global banks and non-bank financial institutions see increased financial transparency as essential to reducing compliance risk,” the report said. “Financial transparency provides deeper insight into customers and helps mitigate the risk of extending services to broader customer segments to expand financial inclusion.”
“Today’s environment is challenging because clients of financial institutions expect things to move quickly” when it comes to opening accounts and making changes, Bailey said. Accurate data helps institutions balance the risks of recommending inappropriate products and services with the need for speed. It also reduces friction between the clients and the processes. Accurate data that can be accessed efficiently also helps institutions protect themselves and their customers from bad actors, she added.
According to the report, “financial institutions remain strongly interested in financial transparency and inclusion, with two-thirds of institutions expressing commitment to supporting financial inclusion.” The study was based on information from 297 banks and financial institutions worldwide.
“However, many financial institutions turn away significant numbers of potential customers due to [the complexity of] current ‘know your customer’ processes. The most challenging customer onboarding hurdles faced by institutions are the difficulty in collecting and verifying customer information,” the report said.
One method of solving some of these problems would be to have a global data sharing arrangement among financial institutions. Almost 80% of financial institutions said they were interested in a global customer due diligence process, compared to slightly more than 70% who said they were interested in 2019. “Institutions cite the greatest likely benefits of participating in a global customer due diligence tool are improved efficiency, reduced customer friction and improved access to data,” the report said. At the same time, private banking clients, in particular, want to keep their information private, Bailey said.
The report developed several conclusions and best practices from the institutions’ responses. “Firms need strong governance to ensure that doing business with new segments is kept squarely within the institution’s risk appetite. Many firms see financial transparency and risk management as complementary tools to mitigate customer risk,” the report noted,