As private banks seek effective risk mitigation measures across their businesses, perhaps their highest operational and compliance hurdle is keeping on top of what their frontline advisers are doing.
Date: Sept 22, 2011
Tags: Regulation, Operations, Compliance
As private banks seek effective risk mitigation measures across their businesses, perhaps their highest operational and compliance hurdle is keeping on top of what their frontline advisers are doing.
Many observers feel the banks have fallen into a trap of over-playing the importance of relationship managers (RMs). In turn, these individuals often wield more power than is reasonable.
When this happens, no matter what operational or other processes a bank puts in place for its RMs, they are difficult to implement effectively.
"The danger in private banking is that it centres around the RMs,” said Conrad Lim, deputy chief executive officer in Singapore, and regional head of legal and compliance for Asia at LGT Bank.
This creates a hazard for the industry. For example, he said, even though the banks try to take on board the right types of individuals and equip them as best they can with the skills and knowledge to do the job, in Asia they are then sent out to meet with clients where the bank has no offices.
"This means the RM is the sole representative for the bank,” explained Lim, “effectively acting as management, compliance, remittance and operations in that market. While we look to build first-class operations and systems to support that, this is an inherent part of private banking.”
Aggressive growth targets and continued poaching from competitors raises a red flag in terms of quality control. And many private banks continue to promise to hire large numbers of advisers.
Plus, given that cross-border risks are a big challenge when servicing clients in Asia, Lim said some of the real problems for private banks are related to fraud and integrity of staff.
"Banks are constantly grappling with how to devise processes, systems and surveillance to prevent and detect it,” he said. “That will never go away.”
At the same time, Nayeem Khan, regional head of operations for Bank Julius Baer in Asia and the Middle East, said it is important to look at it from an RM’s point of view. “Today, the amount of work which they need to do from a compliance perspective is significant – potentially consuming up to 60% to 70% of their time.”
From KYC to document-efficiencies to pre-trade validations to annual reviews, Khan explained that a large volume of work has been added to an RM’s obligations from recent regulations. “This reduces their productivity,” he said.
Banks therefore need to recognise this and respond with a solution that is rooted in automation, said Khan, in the same way as has been done with operations, trading and middle-office functions.
Unfortunately, the situation is still evolving. Banks cannot, therefore, pinpoint everything which is required to enable them to identify exactly what needs to be automated.
"Nevertheless,” predicted Khan, “the winners are likely to be those organisations which approach front-office automation early.”
Given that regulators are largely governing based on RM behaviour, in response to client complaints, private banks need to approach it from that angle, too.
Change governance cannot be led purely by IT systems or operational processes – these are just part of the solution. The main thing is to engage the RM in this mindset.
This panel discussion was co-hosted in Singapore in mid-September 2011 with Omgeo. Further details, including information about Omgeo, are available at this link: http://www.hubbis.com/forum/ocrcawm_2011/
