Quick Wins to Increase Automated Investor Onboarding for Broker-dealers in Europe

Investor onboarding is imperative when it comes to ensuring regulatory compliance and creating smooth experiences that build trust and long-term client relationships. However, investor onboarding is notoriously known for moving at a painfully slow pace as a consequence of a lot of to-and-fros and manual checks. The result? Delays, human errors, and the high possibility of churn.

Broker-dealers must be able to provide a frictionless onboarding experience for investors to be able to quickly access trading services and investment opportunities, whilst still meeting strict regulatory requirements – reducing dropout rates and enhancing operational efficiency.

Key to establishing this is automation; with the right infrastructure in place, broker-dealers can unlock a plethora of ways to increase automated investor onboarding.

The Investor Onboarding Saga

Traditionally, investor onboarding is known to move at an incredibly slow pace as a result of manual checks, spreadsheets, and paperwork. Slow and cumbersome onboarding processes will only create operational bottlenecks and increase the likelihood of investor drop-offs and human errors.

But what if you could achieve two goals at once? Namely, with the right automation tool, you can both increase automated investor onboarding, as well as facilitate a more optimized compliance process – without hindering security or investor experience. That’s what we’ll get into the nitty gritty of further down this article; but, first, let’s unpack what the investor vs. entity onboarding landscape looks like from a regulatory perspective.

Individual vs. Entity Investor Onboarding

Important to note is that there is a difference when it comes to onboarding individual investors and entity investors. The key discrepancies are highlighted below.

Identification & Verification

• Individual investors: Verify identity using personal ID (passport, national ID, driver's license). Face-to-face or secure digital verification required. Conduct suitability and appropriateness tests (MiFID II). Check for Politically Exposed Person (PEP) status.
• Entity investors: Obtain company registration documents, LEI, and proof of incorporation. Identify and verify Ultimate Beneficial Owners (UBOs). Understand ownership structure, especially for complex or foreign entities. Enhanced due diligence for high-risk entities.

Risk Assessment & Due Diligence

• Individual investors: Apply a risk-based approach based on residency, occupation, and transaction patterns. Enhanced due diligence for high-risk profiles (e.g., PEPs, non-residents). Regularly refresh KYC data.

• Entity investors: Perform Corporate Due Diligence (CDD) including business nature, industry, and jurisdiction. Assess risk based on transaction patterns and market activities. Ongoing monitoring, especially for high-volume or high-risk entities.

Regulatory Compliance & Documentation

• Individual investors: Comply with MiFID II and PRIIPs regulation by providing Key Information Documents (KIDs) and full risk disclosures. Maintain records of interactions and provided documentation (ESMA, EBA guidelines).

• Entity investors: Adhere to AML regulations for legal entities (e.g., Germany's GwG, Dutch Wwft). Meet additional requirements under the Central Securities Depositories Regulation (CSDR). Keep records of governance, board resolutions, and transaction authorizations.

Onboarding Process Steps

• Individual investors: Collect and verify ID information. Conduct suitability/appropriateness assessments. Provide pre-contractual disclosures and obtain consent. Formalize the investor agreement.

• Entity investors: Gather corporate documents (articles of association, proof of address). Perform UBO checks and verify controlling individuals. Review governance structure and authorization processes. Obtain signatures from authorized representatives and complete regulatory disclosures.

Monitoring & Reporting

• Individual investors: Monitor transactions based on the investor's profile and expected behavior. Report suspicious activities to national FIUs.

• Entity investors: Set up systems to monitor large transactions or unusual activities. Comply with national regulations (e.g., UBO reporting in Denmark, UK MLR 2017). Regularly review the entity’s risk profile and adjust due diligence.

Focusing Points

• Individual investors: Less complex, but still requires robust KYC and risk assessment. Emphasis on investor protection and compliance with suitability rules.

• Entity investors: More complex onboarding due to corporate structures and higher financial crime risks. Requires deeper investigation into governance and business activities. Stronger focus on AML and UBO transparency regulations.

Process Optimization for Automated Onboarding

Automating investor onboarding involves reducing friction from identity verification to AML checks and risk scoring. Key strategies include:

1. Reducing Friction in Identity Verification

• Implementing electronic ID verification (eIDV) tools such as BankID (Sweden/Norway) or electronic passports for biometric authentication.

• Using AI-powered facial recognition and document verification.

2. Automating AML and Risk Scoring

• Leveraging machine learning algorithms to detect suspicious activity patterns.

• Integrating real-time PEP and sanctions screening tools to reduce delays.

3. Enhancing the Customer Experience

• Simplifying forms with pre-filled data from digital identity sources.

• Offering multi-language support to cater to investors across different countries.

Best Practices for Automated Investor Onboarding: A Quick Win Checklist

1. Streamline Identity Verification:

• Automate identity checks using spektr's digital workflows.

• Utilize eID verification and document authentication tools integrated into spektr.

2. Automate Compliance Processes:

• Leverage spektr's built-in AML and PEP screening workflows.

• Implement automated risk scoring and transaction monitoring.

3. Enhance Customer Experience:

• Create smooth onboarding flows with customizable templates in spektr.

• Use pre-filled data and multi-language support to reduce friction.

4. Optimize Operational Efficiency:

• Use spektr's automated workflows to reduce manual data entry.

• Set up e-signatures and digital approval processes.

What else can you expect when using spektr?

• Automated workflows: this significantly reduces the timeframe for onboarding and all following processes, meaning onboarding and monitoring investors becomes much more efficient.

• Intuitive, user-friendly, platform: a customizable interface makes it easier for investors to navigate through onboarding flows. Furthermore, when it comes to building your onboarding flow, you can fully personalize features such as fonts, colors, logos etc.

• Case management for visibility: gain clarity on every case so you can prioritize with precision and resolve any issues quickly in one place.

• Integrations: through spektr’s API connection, we can instantaneously integrate with any system and migrate existing customer data in a secure and scalable way. This minimizes the need for any kind of manual data entry.

spektr offers an end-to-end compliance solution that helps speed up onboarding processes, as well as automating everything else that follows, including monitoring and alert resolution. We know how hard it is to scale compliance operations the manual way, which is why we offer a tech-driven approach that minimizes errors.

spektr is a team composed of individuals from compliance, legal, tech, and finance backgrounds – guaranteeing you the expertise you deserve to navigate any queries that come your way.

Overview of key regulations affecting investor onboarding in Europe

Just before concluding, here are some relevant investor onboarding regulations that everyone should be aware of.

• MiFID II: The Markets in Financial Instruments Directive II establishes strict requirements for client categorization, suitability/appropriateness tests, disclosures, record-keeping.

• EBA Guidelines: The European Banking Authority (EBA) establishes guidelines to ensure financial institutions implement secure and risk-based approaches to digital identity verification and onboarding of customers.

• ESMA Guidelines: The European Securities and Markets Authority (ESMA) provides guidelines to ensure firms comply with MiFID II when onboarding clients, with a strong focus on investor protection, transparency, and proper risk assessment.

Conclusion

In order to confidently ensure swift onboarding and long-term client retention, broker-dealers must be able to offer an intuitive and frictionless experience to investors. Constant back-and-forth communications and adhering to a strictly manual approach will cost you and your compliance teams. That’s why this guide was designed to cover just some of the key ways that you can automate the process of onboarding investors.

Key strategies include:

✔ Automating Identity Verification – Use eIDV, AI-powered facial recognition, and document verification.

✔ Enhancing Compliance – Leverage real-time AML/PEP screening, automated risk scoring, and transaction monitoring.

✔ Improving Investor Experience – Simplify forms, enable pre-filled data, and offer multi-language support.

✔ Boosting Efficiency – Reduce manual work with automated workflows, e-signatures, and real-time case management.

✔ Leveraging spektr – Integrate seamlessly via API, customize onboarding flows, and centralize compliance oversight.

By adopting tech-driven solutions, broker-dealers can speed up onboarding, enhance compliance, and improve investor retention.

Interested in learning more about how spektr can help you with automating your investor onboarding? Set up a chat with one of our pros. If you’re also just interested in learning more about best practices and different regulations globally, our in-house legal team can keep you updated.