Asset management report sees ‘quiet revolution’ in attitudes to oversight
28 January 2020 New York
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Milestone’s new Outsourcing and Oversight Report 2019 has found that all asset managers surveyed across North America and Europe undertake some form of insight, which enables firms to oversee outsourced fund administration operations.
According to the report, this was up 65 percent when compared to Milestone Group’s previous research from 2014.
The survey also identified a material increase in concern over cyber-risk with 30 percent of respondents indicating it is a “motivating factor” in considering contingent net asset value (NAV) arrangements, which was not considerable five years ago.
Milestone noted that during the period, high-profile cases of service provider outages have instigated an air of additional caution, with 87 percent of respondents pointing to avoidance of reputational damage as the primary driver for oversight.
In parallel to this, Milestone said that regulators are raising the bar for demonstrating best practice with most firms expressing awareness of increasing regulatory scrutiny.
According to Milestone, this is set to continue with most firms expecting more regulatory focus on oversight over the next five years, while 52 percent expect a similar increase in focus on contingent NAV capabilities.
Elsewhere, contradictions emerged as the report found a “high level of recognition that automation is integral to achieving efficient and resilient fund oversight, but manual spreadsheets are still utilised as a part of the oversight function by around half of respondents.”
Additionally, nearly all respondents felt that the independence of the oversight function from their service provider infrastructure is important, the report identified.
It was noted that “service provider reports and portals, which do not generally qualify as independent, continue to play a significant role in current oversight practices for 73 percent of respondents”.
Paul Roberts, CEO of Milestone Group, commented: “It’s clear the industry is becoming aware of the nuances relating to operational risks that modern oversight and contingent NAV capabilities can mitigate, but there remains a way to go-to for the industry to fully embrace resilient systems.”
“While there are relatively few headline-grabbing errors, practitioners know that outages happen more frequently than most realise. Many funds remain unprepared for a complete multi-day outage,” Roberts added.
This survey follows BNY Mellon’s recent decision to select Milestone Group’s technology for their own contingent NAV services.
According to the report, this was up 65 percent when compared to Milestone Group’s previous research from 2014.
The survey also identified a material increase in concern over cyber-risk with 30 percent of respondents indicating it is a “motivating factor” in considering contingent net asset value (NAV) arrangements, which was not considerable five years ago.
Milestone noted that during the period, high-profile cases of service provider outages have instigated an air of additional caution, with 87 percent of respondents pointing to avoidance of reputational damage as the primary driver for oversight.
In parallel to this, Milestone said that regulators are raising the bar for demonstrating best practice with most firms expressing awareness of increasing regulatory scrutiny.
According to Milestone, this is set to continue with most firms expecting more regulatory focus on oversight over the next five years, while 52 percent expect a similar increase in focus on contingent NAV capabilities.
Elsewhere, contradictions emerged as the report found a “high level of recognition that automation is integral to achieving efficient and resilient fund oversight, but manual spreadsheets are still utilised as a part of the oversight function by around half of respondents.”
Additionally, nearly all respondents felt that the independence of the oversight function from their service provider infrastructure is important, the report identified.
It was noted that “service provider reports and portals, which do not generally qualify as independent, continue to play a significant role in current oversight practices for 73 percent of respondents”.
Paul Roberts, CEO of Milestone Group, commented: “It’s clear the industry is becoming aware of the nuances relating to operational risks that modern oversight and contingent NAV capabilities can mitigate, but there remains a way to go-to for the industry to fully embrace resilient systems.”
“While there are relatively few headline-grabbing errors, practitioners know that outages happen more frequently than most realise. Many funds remain unprepared for a complete multi-day outage,” Roberts added.
This survey follows BNY Mellon’s recent decision to select Milestone Group’s technology for their own contingent NAV services.
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