Understanding EBA Connected Clients Guidelines | Tilores

In the ever-evolving landscape of the financial industry, managing risks associated with clients is of paramount importance. Financial institutions face the challenge of identifying and mitigating potential conflicts of interest and increased risks that arise from relationships among clients. To address this, the European Banking Authority (EBA) has introduced guidelines on connected clients.

This article aims to provide risk managers with a comprehensive understanding of the connected clients guidelines, including their purpose, technical aspects, and the challenges involved in their implementation.

Connected clients, as defined by the EBA, refer to clients who have relationships with each other that may create conflicts of interest or elevate risks for financial institutions. These relationships can be familial, business-related, or involve shared economic interests. The EBA guidelines aim to ensure that financial institutions have effective measures in place to identify and manage such risks appropriately.

The connected clients guidelines serve as a regulatory framework to facilitate sound risk management practices within the European Union’s financial sector. By implementing these guidelines, financial institutions can:

Detecting connected clients can be a complex task, but financial institutions can employ advanced techniques and methodologies, including the use of entity resolution technology, to enhance their ability to identify and manage potential connections.

Entity resolution technology plays a vital role in the detection process by effectively linking and identifying entities across vast amounts of data. Here’s how financial institutions can leverage this technology along with other approaches to detect connected clients:

However, the implementation of connected clients guidelines does present challenges for financial institutions:

In the world of consumer fintech we have a wonderful example from cash app (NYSE:SQ) of what happens if you just ignore the connections between your clients. Let’s just say it involves a 20% share price hit. More about that here.

The connected clients guidelines provide crucial guidance to financial institutions for identifying and managing risks arising from client relationships. By leveraging advanced techniques such as data analysis, network analysis, and entity resolution technology, institutions can improve their ability to detect connected clients accurately. Despite challenges related to data quality, privacy, and dynamic relationships, the implementation of these guidelines promotes sound risk management practices within the financial industry. Through collaboration and the intelligent use of technology, financial institutions can navigate the complexities of connected clients and foster stability and trust in their operations.

For more information on the EBA Connected Clients Guidance, see the EBA website.

Originally published at https://tilores.io.