Alphabet soup of regulation affects Family Offices, too

This article is by Lisa Roitman, a business strategist for regulatory compliance technology at Bloomberg.

Financial institutions bear direct responsibility for compliance with a veritable alphabet soup of regulation. Unfortunately for investors and allocators, the long arm of the regulations stretches well past financial institutions and directly into the backyards of family offices, putting a strain on resources, increasing cybersecurity risks, and slowing down the deployment of capital.

At the core of many of these regulations is a requirement for financial institutions to understand the authority, capacity, and suitability of the individuals and companies with whom they transact. This takes place at initial account opening but is actually repeated or refreshed periodically, and in some cases each time there are movements of money or assets. These requirements even extend past entity and trust structures to beneficial owners.

All of this means that family office staff should be prepared to provide the following:

  • Basic entity information and documents (including trust agreements) sufficient to prove the authority required to transact and make decisions.
  • Evidence of location of residence, which may include executed tax forms, passports, driver’s licenses, and utility bills or other documents that contain date of birth, primary and secondary address, tax identification numbers, or other more complicated tax identification numbers such as global intermediary identification numbers and legal entity identifiers (known commonly as GIINs and LEIs, respectively).
  • Identification of beneficial owners, which in some jurisdictions is tested at a 10 percent ownership level. (The U.S. is moving to a two-pronged test: 25 percent ownership and those individuals or entities who “control” decisions or management.)

The challenge in complying with all these requests for information arises because this is mostly a manual process that needs to be repeated time and time again, institution by institution, stretching lean staffs and decreasing efficiency. That there is typically no clear paper trail for this process further complicates the matter, as staff members may need to repeat tasks with no ability to prove compliance through an audit trail. The continued burden on operations materially affects deal velocity and the ability to deploy and realize return on capital.

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Then there is the risk of the inadvertent disclosure of all that sensitive information. Cyberattacks are a “when,” not “if,” risk to every business, especially when sending information through email or other unencrypted channels. A cyberbreach is costly, and those related to the release of sensitive information—such as specimen signatures, dates of birth, home addresses, and tax ID numbers—are particularly susceptible to identity theft.

Leveraging technology solutions in response to these requests provides family offices with control over their data and documents. Technologies that focus on keeping information organized, secure, and easily transferable can make a difference in seizing investment opportunity.

Bloomberg provides a number of tools that can help family office staff satisfy Know Your Customer requests for data, documents, and information. One such solution is Entity Exchange, a secure web-based platform that enables parties to exchange the data and documents necessary to buy and sell assets, maintain trading accounts, and accelerate the deployment of capital. Sensitive information is permitted in an encrypted environment, with auto-match and auto-population of forms and questionnaires. A full audit trail, the ability to provide redacted documents, and version control provide further operational efficiency. For more information, go to or {KYC } on the terminal.

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