A technology solution that improves client service and also improves efficiency seems like the ‘Holy Grail’ in the finance industry. Can this be the answer?
Having worked in the technology and finance sectors, I have seen first-hand just how inefficient the process can be for a finance firm to collect and maintain up-to-date client data. Not only is it important for the firm to have the right information for it to be able to deliver the best service to the client, it’s also an important regulatory obligation to fulfil anti-money laundering (AML) regulations.
If this challenge can be overcome, there are clear benefits, with challenges to address such as:
- The current process is extremely inefficient and time consuming.
- If no investment has been made into the right KYC/CDD systems, it can be a very paper-based process, leading to errors and risks. Some firms are still using spreadsheets for this process which introduce their own inherent issues.
- The client gets frustrated because they have to repeatedly resubmit all the same information. Depending on the client’s risk profile, this can be every year.
- If a client has business with different financial companies, they will be asked for the same information in from each of the companies.
Today, we meet George Pedra, Managing Director of Mesh ID (previously Finos), creator of the solution ‘Mesh ID‘, which was a runner up in the category of ‘Technology project of the year’ in Digital Jersey’s TechAwards.
George explained that ten-strong Mesh ID has been running for three years now and is based in Amsterdam. I started by asking George how a Dutch firm got to work with Jersey businesses.
“Mesh ID has always worked with Jersey clients and when able, we are often in Jersey. The solution was ‘born’ in Jersey from a need from the fund administration businesses.
“We are part of a working group that consists of a leading global fund manager, two large global fund administrators with a big presence in Jersey, one law firm and the island’s biggest custodian bank servicing the funds sector. The working group also includes Digital Jersey with collaboration from Jersey Finance and the Jersey Financial Services Commission (JFSC). The JFSC’s approach and support is very refreshing from our experience of regulators in some other jurisdictions.”
A working group with competitors sounds like a challenge. How did that work?
George said: “The group agreed that the best use case would be in the funds ecosystem, focusing on the KYC process, where the fund investors have to often deliver the same information repeatedly as part of each service providers’ KYC process when investing in new funds”. This is not just during client onboarding, but also during the periodic reviews the fund companies are obligated to perform as part of the ongoing CDD process, some of which can be annual.
“The goal is to give providers the information and tools they need to manage risk, give the investors more transparency and control over who has access to their sensitive information, and make Jersey an even more attractive destination for fund managers in which to domicile their funds.”
“Digital Jersey‘s Jessica Osman is a big help and we are the first project to be invited into ‘Sandbox Jersey‘, an initiative by Digital Jersey to support innovation on the island. The group’s focus was on what the minimum set of features required to add value to the process was.
“The group met every month and we followed Agile methodology, meaning that every month there was something to show and discuss with the group. I am very proud of the work that the group achieved so far.”
Testing of Mesh ID concluded in November, with all five group members involved, including the custodian bank, Royal Bank of Scotland.
Mesh ID has been developed for Jersey, but underlying Mesh ID is a platform already used in the Netherlands that allows for secure sharing of sensitive information about clients, called Integrity Check.
George explained: “In Holland, trust companies are required to share integrity risk information with each other, of clients that have exited. For example, they may discover an issue with an exiting client and they are obligated by law to share this information. Previously this was done in paper form but now Integrity Check automates and secures the process, allowing the information to be shared without compromising confidentiality.”
Clearly, the data being held by Mesh ID is sensitive to both the client and fund company. I asked how they protect this very sensitive data.
“The team’s background is from the finance industry, so we designed everything with security in mind. The platform employs the same bank-grade security used by the world’s major banks and we are audited by one of the ‘big-four’ audit firms. We have taken every single measure to protect the data, ensuring that only the desired recipients are able to access it. We don’t even have access to the information ourselves, it is truly end-to-end protected”. The system is built on blockchain technology, which adds its own inherent security.
“With Mesh ID, the investor (client) holds the digital keys to their profile, which includes their full range of information needed to perform the KYC/CDD process, such as copies of their passport, ID, address verification and entity incorporation. They have control over their documentary proof and can choose which service provider, law firm, bank etc have access to it.
“if they subsequently end their relationship with a services provider, they can just revoke access to their data. They are in full control of who has access to their data and can be assured that it can only be accessed by the providers in a secure manner.
“Many providers currently request this sensitive data via unsecured email. Some even pass it around within their organisation using email, which means there are multiple copies of sensitive data. Not only is this a security risk, but there is no way of knowing whether it is the most up-to-date data. Having a single source of ‘truth’ on the client, means that any information added will immediately be shared (at the consent of the client) with all service providers. This means the providers always have the most up-to-date information at their fingertips.”
For fund investors, the true benefit of using a platform such as Mesh ID will be achieved when it can be used across multiple locations and also multiple providers, as it will eradicate the need for repetitive data provision. I asked George about the plans for other jurisdictions.
“Our primary focus for Mesh ID now is Jersey. The partners in the working group have a global footprint and because the funds providers used by investors tend to be multi-jurisdictional, we will be looking at other locations where our partners have a presence, such as Ireland and Luxembourg.
“The next step is to improve our integration capabilities to allow our partners to interrogate and report on their data.
While the focus of Mesh ID is on funds businesses today, this principle of collecting and managing KYC data can be applied to banking services. It’s clearly just a matter of time before Mesh ID or a competitor moves into the banking space.
For funds providers, Mesh ID holds attractive benefits. Speeding-up the compliance process, meaning the fund can be closed much earlier and become operational is just one benefit. Add to that the onboarding of clients with reduced effort and less pain, together with the revalidation of KYC data almost at the ‘click of a button’, currently a time consuming and manual task, and you can see why fund managers are taking notice. Reducing manual errors and freeing-up their staff to perform more value-add and interesting work for the client all help add to the attraction.
With other challengers moving in on this space as well, this area of ‘fintech’ is an interesting area to keep your eye on.
