The full picture: automating UBO discovery for private equity firms
In part one of this blog, we looked at the increasing regulatory risks facing Private Equity firms driving a reevaluation of the due diligence process.
The need for fast, accurate and comprehensive pre-acquisition due diligence on companies and beneficial owners can only be addressed by technology, and in the second part of this blog we focus on Intelligent Process Automation.
Identifying and verifying ultimate beneficial owners (UBOs) requires access to multiple sources of data, potentially across multiple jurisdictions. Accessing these sources to retrieve relevant information and documents, piecing this disparate data together and manually mapping out a company’s structure using the findings is a long and laborious process. With competition high, slow processes can have an impact on a firm’s success. A technology-led approach to UBO discovery allows firms to move quickly and confidently, offering significant competitive advantage.
A 2017 McKinsey Global Institute report, A Future That Works: Automation, Employment, and Productivity, makes a strong case for continued innovation stating that
Automation of activities can enable businesses to improve performance, by reducing errors and improving quality and speed, and in some cases achieving outcomes that go beyond human capabilities. Automation also contributes to productivity, as it has done historically… Based on our scenario modeling, we estimate automation could raise productivity growth globally by 0.8 to 1.4% annually.
The UBO discovery process is ripe for automation as the sources of information that need to be accessed are available digitally and published via Application Programming Interfaces (APIs). This means that relevant data can be pulled into due diligence tools and platforms saving many hours and streamlining decision making.
Intelligent Process Automation is particularly well suited to the UBO challenge because it augments more traditional rules-based automation with certain decision-making capabilities.
Increase quality of UBO discovery
The manual processes used to access and analyze data from disparate sources means that critical information can slip through the gaps. And these gaps in due diligence – a piece of adverse media linking a beneficial owner to fraud, for example – expose a firm to significant risks. When technology, not people, is used to gather this information the output is faster and more accurate. This is simply due to the capacity offered by machines when performing these routine tasks.
Improve cost efficiency
In depth due diligence is expensive, and for PE firms involves a great deal of wastage. Issues that are uncovered during this activity can break a deal, but by this time the money has already been spent. Automating preliminary due diligence allows firms to identify deal-breaker red flags fast and ensure time and money is not wasted on costly due diligence reports. Based on average industry statistics due diligence costs could be reduced by up to 50%.
Make fast, confident decisions
Unicorns are few and far between, and competition for the most exciting deals is high. Slow due diligence processes can mean missing out to rivals who are able to move more quickly. Compliance needs to support a firm’s growth objectives not hinder them, but traditional due diligence methods are becoming an increasing issue. Improving speed is a must, but not at the risk of reducing quality.
Automating manual processes for UBO discovery, as well as other steps in the compliance and due diligence processes, provides firms with the information they need to make informed decisions fast. encompass uses intelligent process automation to simultaneously access multiple data sources and use the information retrieved to dynamically build out corporate structures. Based on the results, and the UBOs identified, additional screening can also be automated to uncover issues at deeper levels including political exposure, financial misconduct and controlling shares in other companies with vested interests.
At Encompass, our goal is to make due diligence more efficient by speeding up the information gathering process and presenting data in a way that’s easy for analysts and compliance officers to understand and manage.
If you’d like to learn more, or have specific due diligence challenges that you’d like to discuss, please get in touch.