The 31 July deadline for submission of firms’ pre-implementation reports for compliance with the incoming Financial Services Compensation Scheme (FSCS) Single Customer View (SCV) reforms may have passed but the majority of the “great and the good” in the financial services world are still not ready to talk about the customer data changes required as part of the process, according to recent research by think tank JWG. PJ Di Giammarino, CEO of JWG, explains that despite having made attempts to contact around 3,000 industry participants as part of its recent SCV survey, only 61 responded. “A whole cross section of the industry is not ready to talk about the issue yet,” he says.
The survey, which was conducted during March and April this year, highlights some worrying facts about firms’ lack of concern about the SCV reforms, given that the UK Financial Services Authority (FSA) has threatened to take a hard line with those that do not comply. A total of 41% respondents hadn’t even heard of the SCV and 28% could not identify who in their organisations would be responsible for the project. Not reassuring news for the FSA or whoever is charged with tackling laggards in the new regulatory order in the UK.
“The most interesting finding was how difficult it was to find people to get involved in the survey itself and it is indicative that there is a disconnect between the regulations and the way they are being treated by the firms themselves. The challenge with the SCV is that there is no clear owner within a financial institution and the vast majority of those that are dealing with the compliance project merely view it as a regulatory box ticking exercise,” explains Di Giammarino.
To this end, only 14% of firms are taking a strategic approach to the SCV reforms, according to the JWG survey. The report notes: “Like many of the operational requirements introduced in the regulatory tsunami of 2009, the regulation has not been designed so that the information is of immediate value to the firms. The scheme is predicated on the relationship between people/small businesses and the legal entity that the FSA regulates. This means that the information may well not correspond to the bank’s internal management structures and cannot be used for anything other than ‘checking a compliance box’. Ultimately, the customer for the SCV identifier is, in fact, the regulator.”
The reform is therefore all part of the UK’s attempt at meeting the wider G20 goal of improving customer protection and is designed to facilitate “faster payout” of compensation in the event that a deposit taker is unable to meet the claims of depositors. All deposit takers in the UK are required under the reforms to be able to prepare the SCV, but those with less than 5,000 accounts held by eligible claimants need not have an electronic SCV, although they will still need to be able to provide the SCV on request, in another format.
The JWG report notes: “Integrated firms that cover retail, wealth management and even corporate businesses across a large number of jurisdictions are the most exposed as, often, the silos will not be connected at sufficient levels of granularity to be able to meet the requirements of this regime.”
The changes required within larger institutions are likely therefore to be much more costly. According to the estimates published by the FSA and drawn up by consulting firm Ernst & Young last year, the total cost to a large bank of the data cleansing process in order to be able to produce these reports will be between £191 and £243 million. However, only one respondent to the SCV survey indicated that his firm was spending more than £3 million on the project; a worrying disconnect.
Unsurprisingly, the majority of respondents, at 61%, indicated that that they felt their institutions would be ready to comply in time, with only 11% concerned about their inability to comply with the 31 December deadline. Fear of the regulator, which is the main concern for 78% of respondents of not meeting the deadline, is likely to have meant these participants were unwilling to admit the real state of their firms’ projects.
Respondents highlighted data processing and management, data quality and data acquisition as the most challenging aspects of these projects, as well as a lack of clear guidance from the regulatory community.
Meeting the SCV requirements is therefore far from a simple matter. To highlight the scale of the challenge in pulling together customer data from across an institution, in June, JWG carried out a data quality exercise with 10 of its members. Di Giammarino indicates that in its snapshot exercise conducted on 14 July, out of 60 legal entities, only two names and addresses could be matched in their entirety.
The challenge, then, to meet the 27 new regulatory requirements, of which SCV is only one, introduced by the G20 following the onset of the financial crisis that deal with customer data is no mean feat. As noted by JWG, current standards do not allow for a single method to meet the new customer identity management requirements introduced by the “tsunami” of new regulations. But part of the problem is also the lack of a joined up approach to these new requirements.
“The reality is that each of the 93 points on the G20’s reform plan has been pursued independently and, without a central body to coordinate what is essentially the lifeblood of the industry, the data about the customers and counterparties is going to be useless in the central decision making process,” contends Di Giammarino. “The teams within firms working on the SCV are also likely to have never met those working on the entity data requirements of the new transaction reporting reforms.”
A more joined up approach to the disparate regulatory items on the agenda is therefore needed from the regulators and the industry.