Trust and corporate services – Looking at the business systems they need

Trust Companies and Corporate Services Providers (TCSPs) are a significant part of the financial services sector in all the Crown Dependencies. They employee a significant number of islanders across a range of professional and administrative areas. In common with nearly every other area of the economy the TCSP industry is reliant on technology. But what IT systems does a typical TCSP need?

In this article I will describe the two main component systems that most TCSP business need to deploy; an administration platform and a document management system.

Trust Administration Platform

Aside from the basic office systems of email, word processing and spreadsheets, the most important system that all TCSPs will need is a trust administration system. This records all the information needed for a TCSP to manage its clients and carry out its fiduciary and statutory responsibilities. This type of system is often referred to as a CRM (customer relationship management) system or ERP (enterprise resource planning) system.

In a future article I will review some of the most popular systems used by Channel Island based TCSPs, but in this article I will describe the main functionality found in most trust administration systems.

This functionality is usually centred around three core modules – client/entity management, client accounting and practice management.

Client/entity management

Common to all TCSP systems is the ability to manage client data. This is the CRM part of the system, with the core client record usually being a legal entity, such as a trust, company, foundation or partnership. Different systems will have different terminology but the terms Client, Managed Entity or just Entity are most common.

The Client record will have relationships to other entity or contact records in the systems. These entity records will include both natural persons and corporate entities that have a relationship with the client. Examples include directors, shareholders, beneficiaries, bankers and other professional advisors.

Some systems have a special type of entity for the Ultimate Beneficial Owner of the client. Maintaining UBO information is becoming increasingly important for regulatory reporting purposes in many jurisdictions.

The CRM should have functionality to manage various registers such as a Share Register in the case of a company, and will include the ability to manage and maintain all the data needed by the TCSP to perform its regulated activities. These include everything from provision of Registered Office services, Directors and Secretary right up to the complete management of all the trading activities of the client structure.

Functionality to support compliance is also an important part of the CRM, this covers the due diligence needed in onboarding new clients and entities, collection of KYC information, recording of risk assessments and all other record keeping needed to comply with relevant regulations such as anti-money laundering and industry codes of practice.

Client accounting

Most TCSP businesses will also provide accounting services for their clients. This requires maintaining the ‘books’ and producing annual financial statements. Bookkeeping is becoming increasingly automated with direct data feeds from banks and brokers feeding into the client accounting module of the trust administration systems.

Client accounting modules start from the relatively simple functionality to maintain a chart of accounts and produce a trial balance, whilst others include full investment and portfolio management systems.

More advanced client accounting functionality will be able to maintain loan registers between client entities, manage the accounting of fixed assets and produce valuations of investment assets.

Practice management

The Practice Management module deals with the finances and management of the TCSP itself. This includes functionality for time recording and billing, a general ledger, purchase ledger and all the associated financial and management reporting.

Time recording and billing is fundamental to all TCSPs. Even if time based billing is not used, it is still important to know how much time is being spent servicing clients for managing profitability. Some TCSPs will have separate internal accounting systems (online systems like Xero and AccountsIQ are becoming increasingly popular), but will still raise bills in their core administration platform.

Aside from the three core modules most administration platforms will have a range of other optional modules that can be provided. These include:

• AEOI (automatic exchange of information): AEOI is the term used to refer to the annual reporting cycles for FATCA and CRS. Details of financial institutions and their account holders are reported to global tax authorities by uploading standard XML format files to the local tax portals.
• Sanctions Module: screens contacts with published sanctions lists which are imported into the administration system on a daily basis. This enables the TCSP to screen contacts automatically and then take action on any positive hits.
• Payments: Automated generation of payment instructions from the core system, with interfaces to the common banks used by TCPs. This will usually support ‘straight-through-processing’ allowing cleared transactions to automatically be bookkept in the client accounting module.
• Task management: This could be as simple as a mechanism to record reminders against clients and entities or have more sophisticated functionality to generate checklists and ‘to-do’ lists, prioritise tasks and allocate them to colleagues.
• Workflow: The ability to create custom workflow processes for a variety of TCSP processes. These workflows will manage the flow of routine work, allocating tasks to individuals or teams, generating standard documents and managing authorisations and approvals.
• Reporting: The ability for the TCSP to generate their own customised reports and data extracts. This often includes graphical dashboards providing a range of key performance indicators for management.

Document Management

TCSP businesses collect and generate a lot of documents and emails. This unstructured content needs to be stored, retained and managed. This is important. not only for legal reasons (to comply with company legislation, data protection etc), but also to ensure that documents can be found and reviewed when needed.

A TCSP needs to evidence they have the accurate and up to date KYC information on their clients and contacts. This should be checked whenever a transaction takes place so it is important the supporting documents can easily be found.

Many smaller TCSPs rely on shared network folders on their file server or SharePoint libraries in Microsoft 365. These serve a purpose but they don’t easily link to the client records in the core administration system.

Some admin systems do have built in document management systems, which are ideal for smaller TCSP businesses. They allow documents to be viewed from the client / entity records and ensure that documents are recorded correctly to enable them to found when needed. They can also control the destruction of documents when the statutory retention periods have elapsed.

However, the built-in systems often lack many of the advanced capabilities of standalone Document Management Systems (DMS) otherwise known as Enterprise Content Management (ECM) systems. ECM systems are powerful tools with the ability to store all of an organisation’s content including documents, emails, scanned images, audio and video files. There are several ECM systems that work particularly well in the TCSP industry and have good integration with the core administration systems.

Other Systems

There are many other systems that can be used by TCSPs, many of which are so called ‘eco-system’ products that interact with the core administration system. These systems either complement the core system functionality or replace it completely. For example separate CRM and client accounting systems are sometimes used in preference to a an ‘all in one’ solution.

Other IT applications often used by TCSPs include:

• Electronic signature solutions: used to replace wet-ink signatures on official documents.
• Client portals: used to provide online access for clients and intermediaries. Portals can either be used as a read only mechanism to provide information and documents to clients or in two-way interactions to support transaction processing activities.
• Compliance tools: there are a variety of dedicated compliance tools on the market to support TCSPs
• Robotic Process Automation (RPA): RPA and machine learning are both types of ‘artificial intelligence’ that can be used to automate processes and can work alongside existing administration systems.

Cloud vs hosted vs on-premise

Until a few years ago the majority of TCSPs had servers located in a computer room in their offices. With the rise of on-island data centres we saw a move to hosting systems with dedicated IT managed service providers and lately we are seeing a move to ‘the Cloud’.

Cloud simply means using someone else’s computer where the physical IT infrastructure is remote from the business it is served. Cloud systems are highly secure, resilient, scalable and flexible. It is the obvious choice for businesses starting from scratch, and should be considered when replacing on-premise server hardware.

When considering a move from on-premise to hosted or cloud systems there are a number of things to consider which includes any regulatory obligations around outsourcing services, the capacity of networks and internet connections, and of course data security and residency.

Summary

Irrespective of their size, all trust and corporate services providers operate under the same regulations so they all have the same basic requirements for their IT systems. This has created the need for dedicated trust administration systems that all share similar functionality.

With the demands from global and local regulators needing more detailed information, and clients demanding better service and online access to their data, there has never been a better time to invest in the right technology. Particularly in the local markets where skilled staff are always in short supply, using technology to automate processes enable business to grow without needed more staff. Using technology to automate routine tasks allows staff to spend more time on added value activities ensuring clients get a better service.

Solitaire Consulting specialises in supporting TCSP businesses in the selection and implementation of appropriate IT systems to meet their particular needs. We also work with businesses to help them deliver the most value from their investments in IT.