15 Sep3 Must Do Controls for Client Reference Data

This week’s post is inspired by some client work and offers a few suggestions for the kinds of control needed to ensure that client data is both accurate and complete.

In times passed, setting up a client account was more art than science. There might have been twenty fields to fill in. If you filled in all 20, good, if you filled in just 12, never mind. Any problems caused by those missing fields would be sorted somewhere or other later on; well probably.

Art now has to be replaced by science. Firstly, there are a lot more fields to fill in and secondly, having all the fields completed is essential. For example, you now need FATCA certification for every client, even if you think the client is not a U.S. person.

Talking through this problem with a client today made me realise there are three must do controls that need to be in place for client data:

Control of Completeness: If there are 20 fields to complete, you need to ensure that you score 20 for every client. It takes no more than some exception processing and good management information. Simple enough, but requires systems being properly configured.

Control for Quality: My client is setting up some new processing in Switzerland, where withholding tax on interest is a feature. The rate is 35% at source, so nobody will want to pay unless they have to. Local rules provide an exception for banks, but not for simple broker-dealers. Years ago, in a transaction business, we found out about data quality to our cost. We had inadvertently coded Goldman Sachs London as a bank and been paying them gross for a long time. The tax man wanted the tax due and was quite indifferent to whether we had collected the money or not. Big time write-off of some 3 or 4 years tax. Sadly, external sources of client level data are not readily available, so really quality control here requires a “maker / checker” or four eyes check.

Connect client data systems to stored client documents: Historically, if there was some sort of investigation or detailed audit, it was necessary to go to compliance and find the client account file in order to find the physical documents. Every request was a major adventure. With the increase in requirements and the requirement to do on-going due diligence, I believe it will be increasingly important to be able to have all this information connected up and accessible in one place.

Lessons to be Learned:  I am quite convinced that the vast majority of systems and processes in place in client on-boarding practices are not good enough. The three controls above are a minimum benchmark.

Previous Posts: Are available on the 3C Advisory website, click here.


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