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Reflecting on a $900M Miss

A string of mergers in the 1990s turned Citigroup Inc. (Citi) into a financial powerhouse. Many years later, the legacy of those deals and decisions made around system integration (or lack thereof) is now at the core of a major issue for the bank (the nation’s third-largest).

In late 2020, federal banking regulators fined Citi $400 million following a $900 million errant payment caused by a lack of proper risk management and compliance controls. Regulators have ordered Citi to fix its systems, due to “significant ongoing deficiencies,” in order to reduce the likelihood of another error. Adding to Citi’s pain, a court ruled earlier this year that creditors could keep more than $500 million of the accidental payment that Citi sent them in August 2020, directly hitting its bottom line.

Due to the lack of full integration as new businesses were purchased, many of Citi’s various businesses run on their own independent systems and have their own method for tracking legal entities and transactions. There are hundreds of systems inside the bank, and an entity doing business with multiple business units could have different identification codes in each area. This imperfect view of a legal entity and its activity across the bank makes it hard to link all aspects of a relationship, leading to limitations in the company’s ability to manage risk.

Why is this a problem?

A lack of proper risk management and controls can have widespread impact on an organization. One example is financial institutions are required to perform a series of checks on customers and potential customers before entering into a business relationship with them. These Know Your Customer (KYC) guidelines verify the identity, sustainability and risks involved with maintaining customer relationships, and fit within the broader scope of a bank’s Anti-Money Laundering (AML) regulatory policies. They are employed by companies of all sizes to ensure that their proposed customers, agents, consultants or distributors are compliant – and are who they claim to be. Capturing the true scope of a legal entity is also key to other regulatory and compliance mandates, such as the Single Counterparty Credit Limit (SCCL) rule. The lack of an adequate and cohesive view of entities across systems makes it increasingly difficult to measure the full scope of a relationship and verify that those business relationships are compliant. It is evident and necessary for institutions to both prove and ensure their compliance with these regulations in order to avoid federal fines such as those imposed on Citi.

Beyond the risk management view, there are also lost revenue opportunities by not having a cohesive view of entities across the bank. A financial institution that is unable to connect the dots between the business owner that has made a commercial loan with the bank and the opportunity that may exist by extending wealth management services to that same business owner is leaving revenue on the table. But, in many banks where client interactions are managed within customer relationship management (CRM) platforms that are siloed by business unit, those connections and opportunities don’t often materialize (and if they do, don’t happen very efficiently).

Who does this affect?

These potential regulatory issues can arise at any bank that:

  • Prioritized growth via an M&A strategy or was subject to recent acquisitions, and is facing similar challenges when linking customer records across systems
  • Carries significant legacy systems while on a technology modernization effort, and might come across issues integrating customer data from old to new systems
  • Is looking to enter the United States or Canada, and needs to ensure that its systems are compliant with federal regulation
  • Has multiple CRM, accounting and transactional instances across the organization
  • Has implemented a Master Data Management (MDM) solution to master entity data, but the master identifiers only flow downstream, never making its way back to upstream sources

What is the solution?

Federal regulations mandate that an organization should have a complete and accessible view of who its customers are across systems and business units, as well as associated entities. This is not possible without adequate Data Governance and Data Management across an organization.

Consolidated, accessible and complete customer data helps with compliance to federal regulations and has a wide array of benefits for an organization, including:

  • Predicting customer behavior and identifying opportunities for up-selling and cross-selling
  • Reducing sales cycles and replenishing opportunity pipelines more quickly
  • Analyzing customer trends to identify new markets
  • Reducing time-to-time market by further understanding customers’ buying patterns
  • Enhancing productivity by reducing the number of manual processes
  • Improving the effectiveness of marketing campaigns

Kenway’s Information Insight capability blends Data Management, Data Governance, and Business Intelligence, all of which are fundamental in ensuring organizations have a 360-degree view of customers and associated entities across their systems.

Our method focuses on the people, processes and technology surrounding your data ecosystem to create the best solution for your organization. We define and implement processes to help you govern your data from the point of origin, to the point of consumption, to the point of retirement. By taking this approach, we believe that data can be managed in a way that minimizes cost while maximizing an organization’s ability to utilize data as a strategic asset.

If you’re interested in learning more about our experience and approach in this area, contact us at info@kenwayconsulting.com.

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