How large banks working together can achieve cost savings by using a single data utility

08/19/19

  • Sharing client data management could cut banks’ compliance costs by more than half
  • The use of a data utility could cut the cost of maintaining and reviewing client data by as much as 65%, and reduce by half, the cost of on-boarding clients
  • Reduced employee costs - instead of multiple banks having employees doing the same work one shared data utility would only require a fraction of the employees

Strategy& has put together a comprehensive report detailing the benefits of competing banks working together to establish a single data utility to centralize and share client data. The benefits for banks would be reducing the costs and time involved with collecting, storing, and maintaining client information they are obligated to gather to comply with regulatory obligations. They would achieve a higher quality of required regulatory data, too.

Large banks around the world each spend as much as US$88 million a year collecting and storing data from corporate clients[1] — information they are obliged to gather in order to comply with anti-money laundering (AML) regulations. Yet this activity brings no competitive advantage.

As anti-money laundering and know your customer (KYC) regulation is expanding, and compliance with these laws is being more closely monitored by banks and regulators around the world. Meeting these regulatory obligations adds cost at a time when banks are continuing to struggle to improve profits in an environment of low interest rates. “There is no benefit to multiple banks doing the same thing in slightly different ways”. Banks that share high quality regulatory data would reduce their financial burden, improve their bottom line and reduce compliance risks through better data quality.

Banks that share high quality regulatory data would reduce their financial burden and improve their bottom line. In addition, regulators would certainly also appreciate the higher quality of regulatory required data.

Working better together - how a data utility would work
A data utility or network would also provide a better experience for banks’ corporate clients. Companies would not have to fill in different forms for different banks, each asking for variations of the same data. Requests from banks for this kind of data make for a source of frustration for every company with two or more banking relationships (see Exhibit 1).

How a data utility simplifies the handling of data from corporate client to bank

Making a shared data utility a reality — obstacles and recommendations
Drawing on our first hand experience of designing and establishing a data utility for banks, we believe there are two significant hurdles to overcome: setting up the utility as a separate entity that all parties – clients, banks, associations regulators, etc. – recognize as neutral, trustworthy, and stable, and finding a data standard on which all participants agree. Getting the financials right is also important.

The first hurdle is understandably difficult. For banks, it means working with their biggest competitors and making certain they are not losing out by pooling data or paying more than their fair share. Banks working on the data utility together should design a sound governance model, which focuses on the acceptance of the utility by clients, banks, and regulators from the outset.

The second hurdle is agreeing on a common data standard. At present, every bank has its own way of collecting, recording, and reviewing corporate client information, using its own interpretation of local regulations. Some banks also collect additional data from corporate clients in line with their own internal risk and compliance policies.

The need to save costs and increase data quality makes the creation of data utilities a compelling priority
Ultimately, each jurisdiction will come up with its own approach to how data utilities are established, taking into consideration effective governance, secure data standards, and other issues. One result would be a more holistic view of data, allowing regulators greater visibility in the fight against money laundering and other financial crimes. And that clearly will benefit everyone.

[1] Annual spend per financial institution in Australia, France, Germany, Hong Kong, Singapore, South Africa, the U.K., and the U.S., covering on-boarding of new clients and reviewing and carrying out due diligence on existing clients, based on a survey of more than 1,000 decision makers by Refinitiv in 2017.

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