Out of date client information carries a number of risks including potential fraud, failing to meet GDPR requirements or having sufficient information to demonstrate that the firm knows their client.
With talk in the press of investigations into “McMafia” Russian money in London property (1) and the first use by the National Crime Agency of Unexplained Wealth Orders (2) regarding property transactions, the Financial Conduct Authority (FCA) will expect firms to look again at the evidence that they have on client files to support client source of wealth and source of funds.
A problem that all firms face is “Gone Away” or missing clients. Unfortunately, not all clients remember to inform a firm when they change address and in many cases Executors of deceased clients are simply unaware that the deceased person was actually a client of that firm. These missing clients, together with incomplete older client records, create a real risk of identity fraud. Without taking action there is simply no way to confirm whether client circumstances have changed, update documents or make an informed decision as to whether the relationship should be developed or exited.
This situation creates many challenges including:
- Missing client documentation that can expose a firm to AML risk and potential FCA penalties;
- An increased risk of client fraud;
- Often tens of millions in client assets are sitting in dormant accounts;
- The inability to inform clients of changes to terms and conditions including an increase in charges;
- The potential to fail to treat the client fairly;
- The inability to modernise back office and middle office processes.
There are also commercial factors to consider: the increasing cost of maintaining client accounts that are not financially viable and the lost opportunity, for both the client and the firm, of having dormant client funds.
Most companies will have around 3% of their client base as known “Gone Aways”. However, we have found that in most cases only 25-30% of “Gone Away” clients are reported - meaning that senior management is often unaware of the scale of the issue. We have known examples of client records between 1980 to 1990 where 27% of clients were unknown “Gone Aways”.
Conducting a client reconnection exercise can be a daunting task: the ability to successfully trace clients is not an easy one and to commercially utilise the opportunity will require robust project governance and dedicated additional resource. The rewards though can be considerable.
We recommend a six-stage approach to conducting a reconnection exercise:
- Define client strategy: Retention of assets, exit of small accounts, client product solutions;
- Tracing: Reconnection process with known “Gone Away”/Executors, static data updates;
- Reconnection Set-up: Client template letters, resource, client solutions;
- Client Communication and ID Verification: Refresh of the client file and either exist/develop the relationship;
- Future Customer Contact Integrity: Refine existing processes and procedures including resource;
- “Lost Contact” Audit: Ascertain the extent of the “Gone Away” issue by testing a sample of current clients where static data is believed to be correct.
TORI is working with Assets Recovered to deliver a wholistic solution. Assets Recovered are industry leaders with over 10 years of experience in client verification enabling companies to reconnect with over 100,000 “Gone Away” customers and shareholders. We can provide tracing results for even the oldest records(3) or transfer our know-how and training to firms to enable them to achieve similar results - thereby avoiding any Data Protection concerns around the transfer of Customer Data to a third party.
Want to get started on your "Gone Away" strategy? We can provide project management, additional resource to complete the project and a client tracing solution with a success rate which is usually over 90%.
- “Evening Standard” Wednesday 28th February 2018.
- From 31st January 2018, relevant enforcement authorities will be able to apply to require a person to explain and account for the origins of their assets. Namely, Unexplained Wealth Orders will be used where the assets owned by the person are inconsistent with their income level.
- The “older” a book of clients the higher the percentage of “Gone Aways” will be. A relatively new book of clients may have around 3% of “Gone Aways”.