The Next Frontier in Customer Experience? Regulatory Compliance!

4th October 2021 | Blogs

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Series by Maria Scott, CEO at TAINA Technology: Bringing together conversations with the industry’s thought leaders

Part 1 of Series – Why Now?

As I have been writing this piece, I wanted to share a comprehensive 360-degree view of this challenge and so I spoke with many thought leaders in our industry including Business Heads, Heads of Customer Lifecycle Management, Heads of Tax Risk, Innovation Leaders, Chief Customer Experience Officers and some of the brightest minds in the advisory world.

From these conversations, what started as a short piece has transformed into a series of articles. This Part 1 in the Series focuses on why we must tackle the regulatory compliance customer experience challenge now.

Why should we tackle this next frontier now?

The critical importance of customer experience in our new world is now well understood, thanks to the visionary business leaders like Nuno Matos of HSBC, who have been focusing on customer experience as their key priority.

The next frontier we must tackle, however, is customer experience as it pertains to regulatory compliance.

Given the fundamental involvement of compliance in financial markets, if it is left to be dealt with later, we can expect the following consequences:

  • The entirety of the customer experience is affected negatively.
  • The regulatory and operations risks are heightened.
  • Traditional financial institutions lose customers to new competitors who offer better customer experience.
  • Costs of compliance based on manual processes continues to rise.

How do the manual processes involved in FATCA and CRS Compliance impact Customer Experience?

By way a of a very brief background, Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) have been introduced by the regulators of well over a hundred countries to tackle tax evasion.  Compliance with FATCA and CRS involves obtaining and validating complex tax forms from customers. Financial institutions all over the world must comply or they risk billions of dollars in fines or even criminal penalties.

Even some of the most advanced financial institutions that have invested significantly in digitising their customer journeys are still dealing with cumbersome and highly inefficient procedures when it comes to FATCA and CRS compliance.

Traditionally, validation of tax forms is a mundane, laborious but essential task, that is often carried out manually. This requires detailed checks and cross-checks against both the banks’ own data and public information as well as the form itself to screen out numerous errors and omissions and to ensure the forms are valid according to the appropriate rules.

Common pain points in this space include some of the following:

  • Many customers find these forms challenging, indeed some of them hate completing them!
  • For the banks, overlooked errors and omissions at this stage and reliance on invalid forms create substantial challenges at the reporting stage.
  • Unsurprisingly, the frustration caused by this cumbersome and time-consuming process means that customers often resist submitting their tax forms and financial institutions must resort to continuously chasing customers for this information.
  • Errors are common, meaning that forms are often found to be invalid and re-submission is required, causing significant delays. You can imagine the aggravation of a customer who persevered with completing and submitting a form, only to hear from her bank that her form was rejected but they can’t tell her what was wrong with it and could she please submit a new tax form!

All of this is exacerbated by the fact that the regulatory environment is getting ever more complex. Brandi Marie Caruso, Financial Services Industry Tax Leader, Switzerland at Deloitte shared with me; 

“There is increased intersection between numerous complex regimes (e.g. CRS reporting, BO registers, economic substance). Procedures to ensure compliance have been layered on top of existing procedures with this complexity reaching the client facing teams and the end customers.”   

As a result, another key challenge for the financial institutions is ensuring that reporting to different authorities remains consistent and based on the same golden source of data.

What is the industry perspective on this?

Financial services leaders in all types of institutions are now focusing on customer experience as one of their top priorities. As the Head of Strategy and Innovation of a top tier European bank shared with me;

“Customers expect to have an engaging, straightforward and pleasant interaction with the product—a small and visible part of an iceberg above the water. Yet, it takes an incredible effort behind the scenes to make everything resilient and seamless, which is the portion of the iceberg you can’t see. Never take great customer experience for granted.”

While there is increased understanding of the importance of customer experience overall and the role of digitizing customer journeys,  the FATCA and CRS compliance area is often lagging behind, still addressed through manual processes, causing frustration to customers and customer service officers alike. This was said by a Strategic Investments Leader in another top tier institution:

“Technological advances have accelerated broad-based digitalization efforts across the traditional banking sector but have failed to garner significant traction in areas that are still heavily dependent on legacy processes, none more evident than the manual processing of tax forms. Given the associated regulatory risk in the current environment and the expectation to provide clients with a best-in-class digital-based experience, institutions will NEED to make a decision as to how they will adapt and integrate in order to remain competitive or run the risk of being left with a highly inefficient process that remains a key pain point for their clients.”

The negative impact on customer experience caused by this situation often goes unrecognized by senior management. One of the most experienced and visionary Head of Customer Lifecycle Management told me:

Senior business leaders often overlook the importance of tax along with all other things that they deem as operational. Client experience should be end-to-end, and it doesn’t stop at deal execution level because the frustration often originated from the business enablement teams, and tax elements sit within that. Not completing the tax up-front doesn’t make the issue go away but merely extends the timeframe to a later part where clients may be more annoyed.”

Key Take-Aways - Part 1.

The risks of not tackling this fundamental part of a customer journey are too high to ignore.

Frustrated customers give up halfway through their journeys and leave their banks for new competitors, whilst traditional banks suffer from rising costs of compliance through manual processes and regulatory risks soar due to the poor quality of the data collected.

What’s next?

Through the next articles in this series, with the benefit of the lessons from some of the world’s thought leaders and our experience of working in this area for some years now, I will share with you the following:

  • What can be done to transform this part of the customer journey.
  •  Tips, best practices, and areas to look out for along this transformation.  
  •  What the future state and the return on investment will be.

I would love to hear your perspective on this. Please do let me know by responding to the post or you can reach me on maria.scott@taina.tech

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