Why banks working together to setup data utilities for managing client data can improve both their bottom line and regulatory reporting

• Large banks could cut compliance costs in half by teaming up on the creation of data utilities. They would share the cost of managing key client data and reduce the costs of regulatory expense.
• 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.
• Banks could also significantly reduce employee hours spent reviewing regulatory client data. If five banks typically each have 100 people manually reviewing records, a data utility shared among them may require only 150 people in total, not 500.
  

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 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 bureaucratic chore and a source of frustration for every company with two or more banking relationships.

How banks would save with a data utility
Large banks could save 50% of the costs involved in on-boarding a new client’s data, and as much as 65% of the costs of reviewing clients’ reference data records.

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 when it comes to collecting and maintaining data 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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About Strategy&
Strategy& is a global team of practical strategists committed to helping you seize essential advantage. We do that by working alongside you to solve your toughest problems and helping you capture your greatest opportunities. We bring 100 years of strategy consulting experience and the unrivaled industry and functional capabilities of the PwC network to the task. We are part of the PwC network of firms in 158 countries with over 250,000 people committed to delivering quality in assurance, tax, and advisory services.