Outsourcing for Banks Improves Compliance with Regulations

We’ve previously discussed how outsourcing a one-off project or business event can allow organizations to minimize the strain on internal resources during a planned or unexpected event. One group that can benefit from this trend includes banks and credit unions. Many of these organizations may not realize that there are outsourcing solutions specifically tailored to their regulatory compliance needs.

Recent fines for non-compliance continue to highlight the challenges of keeping up. Outsourcing becomes the obvious solution. Whether it’s sending notifications, requesting documentation, or updating account details, outsourcing can help you stay compliant.

Here, we’ll discuss some areas specific to banks and credit unions that can greatly benefit from outsourcing.

UGMA/UTMA Accounts: Alleviate Dependence on Internal Resources

Universal Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts are both custodial accounts, held in the name of the minor, but controlled by a parent or other relative until the child reaches the age of majority. These accounts allow parents to save money and invest, maintaining full control until their child is an adult. Both types of accounts allow you to transfer financial assets to a minor without establishing a trust. 

Any unused money must be distributed by the time the child reaches the age of majority or the maximum age allowed for custodial accounts in their state. For classic UGMA accounts, this generally occurs at the age of 18. For the newer UTMA accounts, this age is usually 21 but could be as late as 25.

FINRA Regulatory Notice 11-02 states that a firm must “know its customers not only at account opening but also throughout the life of its relationship with customers in order to, among other things, effectively service and supervise the customers’ accounts,” and that a firm should “verify the ‘essential facts’ about a customer... at intervals reasonably calculated to prevent and detect any mishandling of a customer’s account that might result from the customer’s change in circumstances.”

• Challenge: Keeping the account information updated continually over the course of 25 years can strain internal resources.
• Solution: Outsourcing the notifications and maintenance of these accounts allows banks and credit unions to utilize those internal resources elsewhere.

Dormant Bank Accounts: Increase efficiency and improve customer retention

A dormant account is an account that has had no financial activity for a long period of time, except for the posting of interest. Financial institutions are required by state laws to transfer assets held in dormant accounts to the state's treasury after the accounts have been dormant for a certain period of time. However, during the dormancy period, an account owner can cause the account to change back to an “active” status if they create an “owner-generated” activity.

Depending on a state’s law, examples of “owner-generated” activity include: increasing or decreasing the amount of the funds or deposit, cashing an interest check, corresponding electronically or in writing with the bank or financial organization regarding the account, or otherwise indicating an interest in the account.  

• Challenge: When banks fail to engage an owner of a dormant account and the account is transferred to the state treasury, the bank loses both the assets and the customer. Maintaining contact with account owners over time is more effective than tracking down account owners who have already disappeared.
• Solution: Much like the maintenance of UGMA and UTMA accounts, outsourcing this type of account maintenance is a great opportunity to increase efficiency and improve customer retention.

Know Your Customer: Gain an edge by leveraging the expertise of others

Prior to the 2001 Patriot Act, the relationship between banks and their customers was regulated by the 1970 Bank Secrecy Act. The Patriot Act includes a section pertaining specifically to regulations and policies to help banks deter terrorist behavior. These laws are known as Know Your Customer (KYC) and include the Customer Identification Program (CIP) and Customer Due Diligence (CDD).

• Challenge: To comply with CIP, banks will need to ask customers for identifying information. For CDD compliance, banks may need to ask customers for information far beyond basic identifying information. This could include the source of funds, purpose of the account, occupation, financial statement, banking references, description of business operations, and more. Because there is no standard for what type of information to collect or how to collect it, banks may find themselves scrambling to remediate accounts identified as out of compliance.
• Solution: When faced with a time-sensitive event, banks can turn to the expertise of others, such as a service provider who specializes in one-off projects or business events. This type of trusted resource can deliver comprehensive, scalable, event management services underpinned by deep financial industry experience. This allows banks to manage costs and resources more efficiently and return to business as usual more quickly.

A Path Forward: Event Services for Banks

Banks have a lot of customers, and keeping track of everyone, whether for compliance or for customer relationship and retention, can be a burden. Most banks execute these events in-house, which strains internal resources. On the surface, these regulatory events may appear straightforward, but they’re often time-sensitive and not core to the bank’s business. By outsourcing the project to a company that specializes in it, banks can improve the customer experience, increase efficiency, and avoid fines for noncompliance.

SS&C Flex offers an a la carte solution that can be tailored and scaled to a bank’s specific needs. We can quickly set up and staff inbound or outbound call centers, support due diligence initiatives like document review, and leverage industry experience to deliver comprehensive project management and event response services.

To learn more about how SS&C Flex can help you stay ahead of compliance requirements and retain assets when UGMA/UTMA accounts come of age, download our “Optimize the UGMA/UTMA Custodian Termination Process” brochure or contact us directly.