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    The Lingering Challenges of Entity Resolution in the Financial Services Industry

    September 2023

    The Lingering Challenges of Entity Resolution in the Financial Services Industry

    In the ever-evolving world of technology, it is surprising to see that the challenges related to entity resolution for complex organizations in the financial services industry have remained largely unchanged over the past few decades. Despite advancements in technology, poor entity resolution continues to have a significant impact on businesses, resulting in operational inefficiencies, regulatory pressures, slow time to market, customer churn, reputational damage, and hefty fines. Financial services enterprises often opt for Master Data Management solutions – including entity resolution capabilities – to resolve some of these challenges. This article explores the underlying issues contributing to these challenges and focuses on the impact of legal hierarchies in the financial services industry.

    The Historical Challenges: Experts in the industry have historically identified three primary issues contributing to poor entity resolution: siloed working with legacy solutions, over-reliance on manual intervention, as well as poor data governance leading to subpar data quality. These problems are prevalent across all industries, and even organizations that have invested heavily in addressing these issues still struggle to achieve optimal entity resolution.

    The Significance of Legal Hierarchies in the Financial Services Industry: Legal hierarchies play a crucial role in the financial services industry, particularly in relation to compliance. By examining a real-life example, we can better understand the challenges faced by financial services organizations in managing legal hierarchies and their impact on the overall operation.

    Case Study:

    A global Tier 1 bank implemented a project aimed at improving data capture procedures and ensuring better Know Your Customer (KYC) compliance. Initially, the project was considered successful, as it met regulatory requirements and led to improved data quality. However, workarounds were quickly discovered, especially for the larger more complex companies with multiple levels of legal hierarchy, where siloed processes and applications within the bank began overwriting good data with incorrect information. Due to the bank's relative immaturity in data governance and management, it became challenging to identify and rectify the problem promptly. As a result, the impact on the business was not fully understood until it was too late, leading to increased costs and a resurgence of old problems. When they embarked upon a major master data management and data governance program, one of the biggest hurdles they had to overcome was around entity resolution for legal hierarchies. Manually collecting the information was costly, time consuming and error prone, so the bank sought 3rd Party reference data to accelerate the processes and ensure better data quality.

    The Importance of Getting Entity Resolution Right: For corporations managing legal hierarchies and their related parties, accurate entity resolution is essential. Incorrectly captured data can compound issues when dealing with subsidiaries or branches at various levels, as well as the customer as a whole. For financial services enterprises, it is even more important to get entity resolution right, as it can impact operational and analytical processes, as well as regulatory compliance. Integrating trusted third-party global entity and hierarchy reference data within your master data management processes will improve entity resolution to more effectively validate and enrich your customer data, enabling actionable insights to mitigate risk and unlock opportunity.

    No matter where you are on your entity resolution journey, we can help. To learn more, visit www.moodysanalytics.com/master-data