A whole host of EU directives and regulations have been enacted to enable both consumers and service providers to benefit from added security, standardization of service levels and lower costs. Regulation No 910/2014, known as eIDAS, also aims to do this and the banking and financial services sector would be a big beneficiary. It is not only the new FinTech start-ups who would benefit from the additional opportunities to operate in a truly digital environment, but also the traditional banks who would be able to offer the very same services as long as they are able to mobilize quickly enough.However, in this particular article we look at how corporate and institutional banking clients will benefit from eIDAS, rather than the retail customers. The reason is that the challenges faced by banks to on board and service retail customers are greatly amplified when applied to an institutional framework. What institutional client onboarding and servicing lacks in terms of volume (when compared with retail banking) it makes up for in complexity.
Tackling the documentation challenge
The potential for efficiency gain that is afforded by eIDAS in corporate or institutional banking cannot be understated. This is because institutional banking relationships and products are both complicated and high value. eIDAS addresses these challenges head-on by providing a platform for faster and secure authentication and signing.
Relationships between banks and their institutional clients are more intricate than perhaps any other business relationship. The amount of regulation that the banks have to follow, coupled with a larger financial stake, is usually responsible for this. This is best illustrated with the help of an example.
Take a large manufacturer (the client) which has subsidiaries around the world. The client wants to fund a new subsidiary that it has created to serve a niche in the market. In order to successfully set up the banking relationship, there are a number of documents that must be authenticated and signed. These could be things like: a guarantee letter from the highly-rated parent on behalf of its new subsidiary, Know Your Customer (KYC) and Anti-Money Laundering (AML) documentation for company directors and other key personnel, numerous product specific agreements between the bank and the subsidiary defining each product and service, and a number of other financial and legal documents.
The entire process of on boarding this new subsidiary by the bank could take weeks or, more likely, months. Not all directors who have to sign the various documents would be available at the same time and place and a good portion of this on boarding time is spent sending over the documents from one office to another. Frequent changes in requirements for a new relationship also means that revisions might have to be made and the process would have to be followed again.
Enabling the enablers
eIDAS will digitize and speed up this entire process of on boarding a new client or augmenting an existing relationship with new products and services. Electronic signatures and electronic seals will replace the paper based processes and save valuable time that could equate to millions of Euros in savings.
The added speed and efficiency of customer onboarding is just the beginning though. The day to day advantage might come in the form of transactional ease. For example, international trade (especially with emerging economies) still requires a lot of documentation at a transactional level. eIDAS can help smoothen out and digitize at least a part of this process and maybe even provide the impetus for other non-EU nations to adopt and enact similar regulations. The overall gain in efficiency in the banking sector would push their clients and the overall economy ever higher.
References and Further Reading
- Selected articles on Authentication (2014-16), by Heather Walker, Luis Balbas, Guillaume Forget and Dawn M. Turner
- Selected articles on Electronic Signing and Digital Signatures (2014-16), by Ashiq JA, Guillaume Forget, Peter Landrock, Torben Pedersen, Dawn M. Turner and Tricia Wittig
- REGULATION (EU) No 910/2014 on electronic identification and trust services for electronic transactions in the internal market and repealing Directive 1999/93/EC (2014) by the European Parliament and the European Commission
- Recommendations for the Security of Internet Payments (Final Version) (2013), by the European Central Bank
- Draft NIST Special Publication 800-63-3: Digital Authentication Guideline (2016), by the National Institute of Standards and Technology, USA.
- NIST Special Publication 800-63-2: Electronic Authentication Guideline (2013), by the National Institute of Standards and Technology, USA.
- Security Controls Related to Internet Banking Services (2016), Hong Kong Monetary Authority