Missed opportunities in the back-office and increasing cost pressures were some of the main takeaways from this year’s FundForum in Copenhagen.
As part of the ‘operations’ stream at the conference, one panellist explained that in the last 10 years, asset servicing has changed at an “unprecedented pace”.
He said: “There are far more complex regulation types and transaction processes now, that are being carried out in a real-time and accurate basis, at a much lower cost. The level of complexity has gone up and will continue to go up.”
Another panellist disagreed with this notion and said: “Other parts of the industry see us, the back-office, as dinosaurs when we talk about technology”.
He added: “People want customisation and their own services and we have to adapt; the one size fits all notion is over. It’s been difficult in recent years to differentiate from competitors. We have seen a true structural innovation and complete disruption in some areas of the industry, but it’s fair to say that maybe in asset servicing we, as an industry, have not had that yet.”
“The question is around operational efficiency. When it comes down to it, we have to boost our sales, using artificial algorithms to predict failed trades on certain patterns is a start.”
The panel explained that the industry needs to use “these tremendous opportunities in technology for insight. Using these technologies, we can automate traditionally manual tasks.”
When advising on how the back-office can innovate further, one speaker said: “Costs are significant. Also, many banks are starting to behave more like technology firms. I would advise to experiment, fail fast—if you’re not doing that it’s not good for the long-term of your business.”
A similar sentiment was expressed in another operations panel discussing the pressures driving operating model transformation, in which one panellist affirmed: “The industry is facing so much cost pressure and the back-office is absorbing it.”
Another panellist went on to agree that the back-office faces the most cost pressures.
He said: “Asset owners need to understand they cannot have it all, some asset classes do require higher fees. We [the back-office] are under lots of pressure. Everyone wants real-time data. We have the pressure of both cost and time.”
Later, on another panel, one speaker claimed that operations departments are “missing some opportunities” within asset servicing.
The panellist explained that there needs to be more efficiency in operations roles to free up the capacity of people available, who could be doing more in other areas.
Meanwhile, other speakers suggested that in order to explore these opportunities, there needs to be a collaborative notion within a firm that every transition requires “a mindset change, and sometimes it’s not an issue to experiment and fail”.
The panellist indicated that experiments are needed and are required to make a successful pace in production of asset servicing models.
He advised that a business should have the traditional management side of its business running parallel with the data/technology and operations side.
He stated: “If you want to see smart analytics and collaboration, leave the operations people to work on their own solutions.”
Another panellist advised firms to share decisions globally “depending on the scale of your organisation. Look for scale–a global vision”.
Also weighing in, one speaker said: “You don’t pay for your back-office, ultimately your customer does, you have to demonstrate and evidence your choices. You also have to work out the costs for those choices and services and make sure they are appropriate in terms of value. That’s ultimately what operations need to figure out over time.”
ESG was a large topic across the conference, given large coverage across panels for every stream, from operations to fund distribution.
One operations panel discussed environmental, social and governance at length, with one panellist affirming: “ESG is here to stay.”
“It’s more and more a question of sustainability, not just around our business, say the carbon footprint of your CEO and executive board, for example. It’s also about where you’re outsourcing to.”
He added: “If you’re outsourcing to a low-cost centre, perhaps somewhere in the developing world, and it’s not powered sustainably, that’s also a question to consider.”
In a panel discussing fund distribution in private and retail banking networks in Europe, a representative from Swiss Life Bank, explained the serious action needed, especially on the ‘E’–the environmental side of ESG.
She indicated: “We’re totally aware that with ESG there is a generational gap, but each individual has a responsibility for it. ESG compliance is not going away. We should care about the planet and our impact.”
“It is our duty to take in to account the kinds of risk management linked to ESG. It’s not just a marketing thing. The ESG criteria will and should become more and more a part of our investment processes in the future.”
Another topic that featured heavily on the FundForum agenda was blockchain. In one particular panel, exploring the impact digitisation and tokenisation has on the future shape of investment management, a panellist explained that the dust is beginning to settle on blockchain and the industry is starting to see how it’s transforming the market in a practical way.
Expanding on that, the speaker revealed that globally, 90 percent of blockchain is a scam, while 20 percent of the money raised for blockchain around the world has been hacked at some point. Because of these numbers, the industry is “correct to be sceptical when playing in this field”.
Another panellist certified: “Education is still key, there’s still not a lot of distinction between cryptocurrency and blockchain, clear definitions need to be understood. What’s holding us back is culture and human intuition.”
The moderator added: “Data is the backbone, while understanding data is the next move. The next horizon is not tokenisation of cryptocurrency, it’s to unify the data concerned with that and it has to be at a pace our clients can take it. To me, that understanding and consideration still feel a long way off.”
The panel also spoke about blockchain on a regional level and cited China as the ‘Wild West’ for blockchain and digitisation, comparing it to Europe, which he said was “traditionally very restrained with a high level of regulations guidance”.
Another panellist, based in Asia, said: “In China, we adopt blockchain because we have to. Is it scalable? I would say it’s still in its infancy. Everything you see with blockchain right now will not be recognised in five years time, it will totally change.”
He concluded: “China holds 27 percent of the world’s cryptocurrencies. Blockchain enables anything you can digitise to move. Technology and blockchain will evolve, it will evolve because of governance, globalisation and data.”
Another panel explored the necessity of treating data as an asset, not a liability. In the panel, which looked at data as a differentiator, a representative from Ernst and Young discussed strategies for supporting business growth through the use of data.
He said: “Data and analytics underpin the new technologies that are transforming global businesses. Wealth and asset managers are investing heavily in technology to meet increased client and regulatory expectations which are predicted through the effective management, ownership and governance of data.”
He also explained that the industry is beginning to realise that there’s a “hygiene factor” concerning data. He said: “It’s worth spending money on data to help bring down other costs”. The speaker further indicated that the right culture is needed to achieve this.
“We need to have a culture where people realise the value of data and how it can change the business and formats. You need to bring managers and CEOs with the right mindset, together with the right people in operations and technology who have a similar mindset. However, those people are difficult to find.”
Concluding, the speaker commented: “Question what analytics you can provide which differentiates your business. If you’ve got valued data as an organisation, that’s the basis. Right now, operationally, you may not be perfect, but data will help your operations to reach that level of improvement. And if your customer data is bang on, it’ll be the most valuable asset of your organisation.”
