How Banks Can Tackle Legal Entity Management

Lauren Mcmenemy

It doesn’t matter what sector or what size an organization is, legal entity management can be complex and tricky for everyone. When we’re talking about banks and other financial institutions, though, the level of complexity takes a giant leap upwards.

When banks tackle legal entity management, they have not only the general issues of regulation, governance and compliance to deal with, but also the additional pressures of increasing financial regulation and the push for transparency in banking operations. The 2008 global financial crisis, and the subsequent collapse of many long-term and large banking institutions, led to global regulators taking a closer look at the financial sector. As a result, banks have been amending their approach to entity management and governance, attempting to make operations and strategic decision-making much more transparent and open to scrutiny.

The way banks tackle legal entity management today must now include a keen attention to detail, and the ability to provide robust evidence that governance and corporate culture are taken seriously by the bank. In addition, detailed records must be centrally stored in a repository that’s easily accessible by anyone who might be asked by regulators or auditors to provide the evidence.

Modern governance and legal entity management practices for the banking industry, then, are in a state of flux as institutions work to meet regulatory demands while ensuring both corporate confidentiality and that the data of customers remains protected and secure. That’s why more and more technology is being deployed to help banks tackle legal entity management, and to create a single source of truth for all banking operations and the corporate record.

Best practices for legal entity management in the financial sector

As they create business strategies, a plan for how the banks tackle entity management must also be developed, bearing in mind global regulatory movements. Banks must intimately understand and have a plan of attack to deal with regulation, such as:

  • Basel III, a set of international banking regulations developed by the Bank for International Settlements with the aim of promoting stability in the international financial system by discouraging banks from taking on excess risk.
  • FATCA, or the Foreign Account Tax Compliance Act, the US regulation that requires foreign financial institutions and certain other non-financial foreign entities to report on the foreign assets held by any US account holders, or be subject to withholding on withholdable payments.
  • The Common Reporting Standard (CRS), which calls on jurisdictions to obtain information from their financial institutions and automatically exchange that information with other jurisdictions on an annual basis.
  • The Know Your Customer rule, an ethical requirement for those in the financial services industry who are dealing with customers during the opening and maintaining of accounts.
  • FinCEN’s Customer Due Diligence Rule, which mandates the identification and verification of beneficial owners of legal entity customers.
  • Local Anti-Money Laundering and Counter-Terrorist Financing (AML/CFT) regulations, which aim to mitigate the adverse effects of criminal economic activity and promote integrity and stability in the financial markets.
  • The General Data Protection Regulation, or GDPR, which is a European Union-wide regulation governing how any organization should handle and store the personal details of anyone it deals with, whether that’s customers or employees, board members or prospects. The GDPR also requires that organizations hire a Data Protection Officer, an additional compliance team member who should have oversight of all data practices.

These global regulations and transparency movements will have local implementations that could differ – there is no single global practice when it comes to how banks tackle legal entity management for these and other regulations – and so a robust and efficient global entity management system is fast becoming a mandatory requirement for the banking industry. Entity managers need a simple and efficient way to identify risks and compliance status on an international scale, while also managing the local needs for maintaining compliance.

Every aspect of a banking entity – from how it is set up to how it operates; from how it advertises itself and finds customers to how it signs up those customers and handles their data – is under scrutiny. There are a lot of nuanced regulations that require slightly different information to be handled in slightly different ways, and so entity managers in the banking industry need a reliable system for surfacing these details, getting the right information to the right people at the right time for compliance and governance.

Agility is the name of the game, and as the pace of change increases, banks must embed flexibility into their operating models to enable rapid adjustments. Fears about being “too big to respond” to the market will no longer be entertained, and the way banks tackle legal entity management must allow for quick thinking and quick action.

Governance is important to the banking industry, too

In the rush for banks to tackle legal entity management, it’s important that governance doesn’t fall by the wayside. Australia’s financial sector recently found out what happens when there’s a failure of governance within banking; the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, a judicial inquiry, found a systemic failure of governance throughout the sector. In his interim report, Justice Hayne notes that “every piece of conduct that has been contrary to law is a case where the existing governance structures and practices of the entity and its risk management practices have not prevented that unlawful conduct.”

Banks must ensure that financial risks do not dominate thinking. Just as important, if not more, are the non-financial risks – those compliance and culture-based operational risks that need to be led and managed from the top, such as organizational culture, compliance and governance processes, and the remuneration and other policies put in place.

As banks tackle legal entity management, it’s important that they do so under robust modern governance processes that are fully tracked, planned and well-implemented.

Banks can tackle legal entity management by leveraging technology

The best way to achieve the level of attention to detail necessary for the way modern banks tackle legal entity management is through leveraging entity management technology to streamline operations and bring efficiencies to workflows.

Entity management software can not only provide secure messaging and file-sharing services for banks, but also creates that single source of truth that’s so essential for reporting and compliance. It provides a platform to store entity information, documents and organizational charts in a highly secure format, and to manage the ongoing accuracy of the corporate record using compliance calendars, reminders and workflows for better data.

To help banks tackle legal entity management, Diligent Entities and Diligent Boards seamlessly integrate with a secure file-sharing platform to create the Governance Cloud, an end-to-end technology solution to help mitigate risk and gain visibility into all aspects of entity management and governance.

Get in touch and schedule a demo to see how Diligent’s Governance Cloud can help banks to streamline and elevate their approach to entity management.

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Lauren McMenemy

Experienced journalist Lauren McMenemy has been writing about compliance and governance for several years, and has covered finance, professional services, healthcare, technology, energy and entertainment.