GLEIF proposes a standardized way forward on the challenges of entity identification in financial services based on their new research findings:
57% senior salespeople in banking spend more than a day and a half of their week onboarding new client organizations, according to research findings published by the Global Legal Entity Identifier Foundation (GLEIF).
They also found that 50% of financial institutions use, on average, four identifiers to help identify client organizations. This data supports GLEIF’s view that replacing disjointed information with a globally accepted approach based on broad adoption of the Legal Entity Identifier (LEI) would remove complexity from business transactions and deliver quantifiable value to financial services firms.
In a survey of over 100 senior salespeople in the banking sector in the UK, US and Germany, the process of client onboarding, including know your customer (KYC) due diligence, was shown to take six weeks, on average. This length of time spent onboarding creates a significant burden; salespeople have less time to work on their core focuses, such as acquiring new business and servicing existing clients.
Other key findings include:
- 57% of respondents agree that reliability of reference data is a challenge
- 55% of respondents agree that the resourcing of onboarding is a challenge
- 55% of respondents agree that lengthy processes mean risk of business loss
- 61% of respondents agree that digital technology will further complicate the process
Stephan Wolf, GLEIF CEO, comments: “Our research results show that the onboarding process for new business relationships in financial services is too time-consuming and requires too much administration. In a globalized digital economy, verifying the identity of customers, partners and suppliers is becoming an increasingly complex and costly challenge. However, the growth of
identifiers is leading to problems that must be resolved to assure their vital place in oiling the wheels of the growing global digital economy.”
The burden continues even once the client is established. Client data must be kept up-to-date throughout the business relationship. This includes regular verification of business card information and changes to the ownership structure.
The research identified that the crux of the problem is the lack of a standardized approach to legal entity verification. As a result, 54% of respondents agree that the use of different legal identifiers for the same legal entity leads to inconsistencies with updates to different reference data sets. The research found that 58% of those surveyed said that the associated reference data is not up-to-date, while 46% said reference data from different sources is inconsistent and 49% said the same ID is used for different legal entities.
Wolf adds: “Identifiers of legal entities are easily obtained from a host of different issuers but are not kept up-to-date in a systematic way. Organizations need a more efficient system for legal entity identification. Some think technology will help but there is no general consensus about what the solution should be.”
”At GLEIF, we are convinced that financial services businesses can save time, gain greater transparency, and work in a more streamlined fashion by adopting an LEI for each client organization,” says Wolf. “Banks operate in multiple jurisdictions and therefore need a global standard. The LEI offers businesses a one-stop approach to identifying legal entities, which has the potential to take the complexity out of business transactions. Via the Global LEI Index, we make available the largest online source that provides open, standardized and high quality legal entity reference data. No other global and open entity identification system has committed to a comparable strict regime of regular data verification.”
Wolf concludes: “Integrating the LEI into other entity verification methods, including solutions based on digital certificates and blockchain technology, will allow anyone to easily connect all records associated with an organization and identify who owns whom. By becoming the common link, the LEI will provide certainty of identity in any online interaction, making it easier for everyone to participate in the global digital marketplace.”
The report titled ‘A New Future for Legal Entity Identification’, which details the results of GLEIF’s research into client identification in financial services, is available on the GLEIF website. https://www.gleif.org/en/