Covid-19 has focused asset managers’ minds on many issues – notably the need for operational resilience. The pandemic’s various challenges served as a test for many businesses’ risk management and operational capabilities.
However, the growing need for robust operational systems has been front of mind for many asset management leaders even before the pandemic. Regulatory and compliance requirements are some of the key drivers of this.
Growing regulatory needs
Research by Deloitte conducted last year found that half (51%) of asset managers it surveyed were concerned about having to enhance their systems and processes “to meet new or revised regulatory requirements” as well as increasing resources dedicated to compliance (1).
For example, legislation introduced this year by the European Union around sustainability standards and definitions has forced asset managers to review how they market their products to ensure they comply with stricter rules about what is considered ‘green’.
In the UK, Brexit has required significant investment from groups operating in both the UK and the EU in order to remain compliant in two, now separate, jurisdictions. Separately, the UK’s Financial Conduct Authority (FCA) has been scrutinising the delivery of value for money from asset management products to clients – a process that is also gaining traction in Europe and Australia.
Elsewhere, regulators are also increasing their focus on specific asset classes. Market shocks from Brexit and the Covid-19 pandemic caused particular liquidity issues in UK property funds, triggering a formal review of the sector’s rulebook. Money market funds have also been subject to a regulatory overhaul in the wake of the global financial crisis of 2007-09.
Added to this, asset managers are not immune to secondary regulatory effects – those that directly impact clients but that can also result in greater reporting requirements for service providers.
There is little sign of this regulatory pressure reducing, meaning asset managers will have to respond through improved reporting of performance, costs, and other data.
Investor requirements
In addition to this, investors are more demanding in what they look for in the asset managers before entrusting their capital to firms. In fact, a recent PwC study found that institutional investors considered operational strength as the most important priority when assessing asset managers (2).
PwC ascribes this to two key reasons:
• The growing importance of alternative investments, due to the low interest rate market environment;
• The increasing prominence of environmental, social and governance (ESG) criteria in asset managers’ processes.
Alternatives are becoming more crucial for asset managers. It represents the largest revenue pool for asset managers, with more than 40% of revenues, even though it is only 15% of global assets under management . These assets introduce additional complexity to an asset manager’s operations.
ESG factors and sustainable investing criteria do not only impact the investment desk – it has real implications for asset managers’ operations. There is increased scrutiny on investment processes and decisions. This implies greater transparency on data and potentially enhanced reporting requirements – emphasising the importance of resilient systems to cope with these needs.
Technology platforms need to ensure asset managers are able to react swiftly to these changes in requirements to help streamline processes. Resilient operations are no longer just a risk management mechanism. It has become an important tool to ensure client satisfaction and retention.
With the right technology, businesses can speed up the transferring and processing of data through the investment cycle. Streamlined, efficient and automated processes mean quicker response times to client requests, from the smallest investor to the largest institution.
For more information about Bravura and the fund administration services we offer, please get in touch.
Sources
(1) ‘Struggling with the asset management compliance puzzle?’, Deloitte report, 2020: https://www2.deloitte.com/content/dam/Deloitte/us/Documents/financial-services/rfa_2823943_im_compliance_pov.pdf
(2) https://www.pwc.nl/nl/assets/documents/pwc-a-wm-revolution.pdf
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