Vistra Insights

How digitalisation can optimise investor onboarding and KYC processes

Over the last two years, organisations have realised just how much digital processes can help them remain nimble, especially during times of massive disruption.

Private equity firms in particular need to increase their agility, streamline operations, improve risk management and better serve investors. The key to achieving these goals is digitalisation.

Many existing processes for investor onboarding — especially know-your-customer verification — are full of inefficiencies. The old pen-and-paper approach is time-consuming, labour-intensive and outdated as firms face evolving, increasingly burdensome compliance requirements. The good news is that digitalisation can help funds deliver a seamless investor onboarding experience and enhance enterprise security at the same time.

Current onboarding and KYC challenges for PE firms

Seemingly endless required paper forms, back-and-forth communications, repeated follow-ups and re-submission of the same information are hallmarks of today's investor onboarding and know-your-customer, or KYC, verification processes.

Let’s take a typical example. An investor may provide information on a form or standalone online portal. Then a fund manager or another employee at the firm may have to manually re-enter this information or import it into a separate system. From there, the verification process begins, which usually entails KYC and anti-money laundering (AML) checks to authenticate investor data. At each stage of this verification process, employees may have to follow up with the investor to get additional information, leading to an unwieldy timeline, delayed onboarding, and more manual work that only increases the risk of error and non-compliance. These inefficiencies also increase the likelihood that the process becomes so cumbersome that the firm loses an investor or misses a prime investment opportunity. 

Firms need to deliver a frictionless onboarding experience and streamline the KYC verification process to strengthen security, reduce the risk of non-compliance and avoid antagonising investors.

Responding to new digital demands: Solutions for private equity firms

Build new digital internal processes

Rather than rely on the manual processes we’ve described, firms can simplify the onboarding process by using electronic signature and document management platforms to collect investor information.

A digital signature solution that integrates with a firm's customer relationship management system (CRM) can accelerate the onboarding process by pre-filling investor and client information into designated fields and incorporating intelligent prompts that guide users through the submission and signing process. A digital signature solution also offers cross-channel capabilities that allow investors to sign relevant documents and upload information through a desktop or mobile device and gives managers the ability to authenticate an investor via email, phone or text by asking questions pulled from public databases and online sources.

Using an electronic signature tool is one of the most straightforward ways firms can digitise their processes and automate their workflows. 

Invest in an all-in-one platform

Firms also should consider investing in a comprehensive regulation technology (regtech) solution, such as a KYC or private equity management platform, that allows them to build and deliver a seamless end-to-end investor experience.

These kinds of integrated solutions offer a range of capabilities, including combined manager and investor portals, digital signatures, document repositories, investor profiles, risk ratings based on the information an investor provides, and the ability to perform AML searches across jurisdictions. Depending on the platform, a firm also can pull in data from regulatory watchlists, litigation and corporate records, and even news reports to strengthen the due diligence process. In addition, a comprehensive platform often provides dashboards that allow employees to quickly receive status updates, see where an investor is in the onboarding process, and take corrective action to move the process forward. 

These capabilities can help firms automate the verification process and qualify investors sooner than traditional methods.  

Outsource onboarding and KYC services for investors and beyond

Firms can adopt new technologies to digitise their operations, but this leaves them responsible for figuring out how to integrate and manage it all. 

This is where outsourcing and managed services can be valuable. Working with a fund administrator helps firms access the global operational support and modern technologies they need to digitise their operations. A fund administrator can provide a highly secure and resilient technology-enabled platform with custom, fully automated and integrated portals for document collection and KYC and AML checks. The platform also can streamline external communications between managers and investors and internal communications between employees to minimise inefficiencies in the onboarding process. By turning to managed services, firms can access global experts and local specialists that act as an extension of their team — freeing up more time and internal resources they can redeploy to uncover new investment opportunities or deliver high-touch, personalised service for investors. 

Investors, particularly institutional investors, are also more focused than ever on security. Outsourcing KYC and onboarding services can help firms access technologies with more robust security than the manual processes or internal patchwork systems they may rely on today. A fund administrator can provide tools that allow firms to improve access controls via multi-factor authentication, increase their data visibility, establish a verifiable audit trail, safeguard investor information, and strengthen their data protection and disaster recovery capabilities.

Outsourcing fund administration services — even just those services that directly relate to KYC and AML — doesn’t of course begin and end with investor onboarding. Alternative investment managers know that fulfilling KYC and AML requirements when opening a bank account in a new jurisdiction is particularly onerous. The process is increasingly complex given proliferating regulations, and it can take weeks. The good news is that an experienced third-party fund administrator can in many cases use emerging digital banking options to open an account in just days. As with investor onboarding, an effective third-party fund administrator uses available, secure technologies, along with comprehensive knowledge of the processes and requirements involved, to streamline operations and allow fund managers to focus on their core activities of investing and fundraising.

Making your PE firm more digitally enabled 

Ultimately, running a fund is a lot like running a business. Firms need to increase their operational efficiency to serve investors better and reduce compliance risks.

However, resource planning and business process challenges sometimes come at the expense of nurturing a better relationship with investors. Digitalisation can help firms automate their workflows and internal processes, improve collaboration and communication and create seamless interactions with investors. Both institutional and high-net-worth investors now expect a best-in-class digital experience. The firms that deliver it will give these highly sought-after targets a compelling reason to consider investing with them.

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