First Horizon: Regulatory Compliance Through Automated BPM

Highlights

Challenge: First Horizon’s mortgage banking line of business needed an efficient and effective process management solution to comply with new regulatory requirements.

Solution: First Horizon implemented a process management solution using the BEA AquaLogic Business Process Management Suite that automates, optimizes and enables collaboration in managing compliance.

Results: First Horizon achieved rapid response to regulatory requirements resulting in increased efficiencies in the origination and risk management operations.

Customer Brief

Over 13,000 employees of First Horizon National Corp. (NYSE: FHN) provide financial services to individuals and business customers through hundreds of offices located in 46 states. The corporation's three major brands -- FTN Financial, First Horizon and First Tennessee -- provide customers with a broad range of products and services, including retail and commercial banking, capital markets, and mortgage banking. First Horizon is one of the nation's top 25 mortgage originators and top 15 servicers.

Business Process Challenge

Much has happened in the first few, short years of the 21st century to change the U.S. and the world forever. The dramatic and tragic events of 9/11 have brought terror to the forefront of international diplomacy and public policy. A series of unprecedented corporate scandals have changed the way investors and government regulators view big business. And identity fraud has become a global issue affecting millions of consumers, banks and merchants.

A series of laws have been enacted to deal with these issues, perhaps none more publicized than the USA Patriot Act. Among the major provisions of the law is the “Know Your Customer” or KYC requirement. Wikipedia describes KYC as due diligence that financial institutions and other regulated companies must perform to identify their clients and ascertain relevant information that is pertinent to doing financial business with them. KYC policies have become increasingly important globally to prevent identity theft, money laundering and terrorist financing.

The business challenge created by the KYC requirement for First Horizon and most other U.S. financial institutions was to comply with the government mandate in the most accurate and cost-effective manner possible. This includes the collection of required data, quality control and processing of missing or exception data. First Horizon also required management tools to monitor and measure the performance of third party service providers participating in the process. At times, the implementation of government regulations can be inconvenient for customers and divert valuable time away from customer related tasks. First Horizon’s top priority was to minimize potential intrusion to their customers and limit time away from core customer service activities.

“We needed to be smart about the new KYC requirements,” said Michael Dillmann, VP HMDA & KYC Audit at First Horizon. “We needed to be creative and come up with a process that would automate as much KYC work as possible in a centralized environment, thus reducing the impact on both our customers and our production channels. And for the portion of the process that couldn’t be automated such as manual data entry task, we needed a way to manage it, track it, and ensure data accuracy without creating a massive bureaucracy within our operations.”

First Horizon also wanted to roll out a process management solution which would leverage components of its Services Oriented Architecture (SOA) to reduce the time and cost of process implementation. In order to stay competitive in the marketplace and execute rapidly, First Horizon embraces both BPM and SOA principals and sought solutions which do the same.

Solution

First Horizon’s mortgage banking division examined a number of compliance options involving a variety of technologies, staffing models and company resources. After careful consideration, they opted to implement a KYC business process management application on BEA AquaLogic Business Service Interaction product line featuring AquaLogic BPM Suite (ALBPM).

“The attributes that really set ALBPM apart became apparent during an earlier proof of concept,” said Robert Salazar, VP Process Management at First Horizon. “It offers outstanding process modeling and simulation. Development, integration and implementation are fast and intuitive. The product is based on open standards so we won’t be shackled by vendor lock-in. And at a tactical level, its portal interface and automation capabilities are reliable and user-friendly.”

The management of the First Horizon KYC process is now largely automated covering data collection, quality control, exception handling, and reporting. The process management solution maps data originally captured in First Horizon’s origination systems to KYC data stores persisted in an Oracle 9i RAC database. To review and complete required data, ALBPM creates work items for First Horizon’s data entry service provider. Through the ALBPM work portal, the data entry personal are given a task list and are directed to the appropriate documents where they can find the necessary data and enter it into the KYC data store.

Throughout the process, management has operational visibility to all work in progress. First Horizon relies on ALBPM’s activity monitoring and tracking facilities which not only track what activities are performed by whom but also measures the performance of internal and external parties. Managers are notified when an activity has been open too long or a case contains incomplete or incorrect data. After each KYC transaction is certified as completed, the appropriate workflow is executed to ensure compliance with government regulations fulfilling First Horizon’s responsibilities.

“This was a new operational requirement for First Horizon,” said Salazar. “That’s the beauty of a platform such as ALBPM. We were able to experiment with ‘what if’ scenarios and model an ideal process before focusing on technical or implementation details. The process incorporates exception handling, reporting, task management, and many other elements to ensure data accuracy, minimize human intervention, and prevent the processing queue from stalling.”

The KYC process management solution was designed and developed entirely in-house by First Horizon. When First Horizon initially began working with ALBPM in 2005 (at that time the Fuego BPMS), they utilized Fuego Services to help get started. The consultants helped train First Horizon’s IT staff on ALBPM so they could become self-sufficient quickly. The consulting team also worked with First Horizon to develop its own set of BPM best practices, coding standards, and a development methodology based on Agile Development concepts. This strategy helped First Horizon understand the concepts and techniques that are particularly important for process centric automation which were ready to apply when they began the KYC effort.

The KYC process is powered by a two Intel Xeon-based HP ProLiant servers running the Microsoft Windows 2000 operating system.

Results

The process was designed, developed, tested and implemented in a short time period. Salazar estimates that the time to deliver this type of comprehensive process management solution was 25-30 percent lower than it would have been using traditional technologies and methodologies. He expects that time and cost savings of future process improvement projects will increase as the First Horizon team becomes more proficient with process management disciplines.

Projected volume and scalability requirements have been achieved. The KYC process will handle a large annual load which is expected to grow in the future. “The scalability of the solution is very important,” added Salazar. “We don’t want to invest any more than necessary. The ability to extend the process over time allows us to keep costs in check and only devote resources to KYC that are absolute necessities.”

First Horizon is experiencing significant operational efficiencies with the KYC business process management application. The solution eliminates the tedious process it takes for an individual to check the various systems throughout the enterprise in order to complete a task. Users and process mangers get real-time data, reporting capabilities and an intuitive portal dashboard connecting people, systems and resources to the KYC workflow. Simultaneously ALBPM enables collaboration between personnel increasing productivity and reducing cost by 40% over manual processing activities.

“We’ve been very happy with the results of our process improvement efforts utilizing ALBPM,” continued Salazar. “There are a lot of moving parts to the KYC process, and that’s true of all of our operations. Since beginning our work with the ALBPM platform, we have improved strategic processes in our loan originations, loan delivery and loan servicing operations. We’ve asked a lot of the technology and of BEA support. They have delivered and we are meeting all of our objectives.”

About BEA

BEA Systems, Inc. (NASDAQ: BEAS) is a world leader in enterprise infrastructure software, providing standards-based platforms to accelerate the secure flow of information and services. BEA product lines — WebLogic®, Tuxedo®, JRockit®, and the new AquaLogic™ family of Service Infrastructure — help customers reduce IT complexity and successfully deploy Service-Oriented Architectures to improve business agility and efficiency. For more information please visit www.bea.com.