Bumpy roads ahead
07 September 2015
Achieving operational efficiency today should be a priority for asset managers, if they’re going to survive tomorrow. Todd Moyer of Confluence explains why
Image: Shutterstock
All money managers would likely agree that recent regulatory changes have transformed the asset management world. We are now looking at an almost wholly renewed industry following new rules, answering new demands, and interacting differently with its investors.
Over the past few years, regulators have adopted a more prescriptive, hands-on approach to rulemaking in an attempt to better understand the dynamics of the managed investment sector as a whole. The approach is focused on managing systemic risk by collecting and analysing more of the managers’ data. Many of these new and different types of data are much more difficult to source and verify. They need to be sourced from counterparties and service providers, extracted from new applications and then aggregated and normalised into a single data framework that can be used to satisfy multiple new reporting requirements.
Those new regulatory demands have subsequently put quite a lot of pressure on the asset managers’ back-office operations. Firms have had to upgrade their data collection systems and move away from manual processes and spreadsheets, even when their risk assessment and capture practices were reasonably strong, in order to adopt automated data capture systems capable of meeting shorter and more frequent reporting deadlines.
This shift has been particularly noticeable among the larger asset servicing firms, many of which have begun scrutinising their traditional operating models in order to cut costs and improve efficiency. Many firms have brought in new management teams in 2015 with the mandate to do just that, but without diminishing quality of the service.
These initial changes firms are making have helped alleviate some of the regulatory cost burden, cut down the risk inherent in spreadsheet dependence, and helped to make some improvements to operational efficiencies and scalability through automation.
But the reality is that the regulatory push for a more transparent industry is far from being over, and the recent enhanced data reporting rule proposal from the US Securities and Exchange Commission is the latest sign that transparency reporting mandates and costs will continue to be on the rise.
Partnering for success
As regulators have expanded their post-crisis focus to protect investors and manage systemic risk, we have seen several firms explore options for outsourcing data management to a single, centralised platform provider that acts as a vendor of record for managing regulatory data.
In many cases this can be a sensible decision, as much of the cost for complying with the latest regulatory demands shifts to the vendor and lessens the burden placed on the asset manager.
Furthermore, building technology in-house often progresses at a very slow pace, which increases the risk that the technology is obsolete by the time it comes in to use. In-house builds can also suffer from infrequent upgrades and enhancements, leading to decreased performance over time.
Hybrid outsourced solutions pieced together from multiple vendor products lead to a more fragmented back office, which eventually impacts the overall efficiency. Many firms are using too many single-point vendor applications that are often limited in their ability to integrate with and reuse existing data from other systems.
In order to achieve greatest system efficiency and business flexibility to address current and future regulatory requirements, asset managers should look for a solution partner that can leverage the right functionalities to efficiently reuse data and rapidly develop new reporting modules when needed.
Flexibility and adaptability
In this new regulatory era, data transparency and accountability for large-scale data collection is soon to be the norm, and data inaccuracies can no longer be tolerated. Asset managers need to focus on these key areas to ensure that they are best prepared to meet new and future regulatory deadlines.
In this sense, flexibility and adaptability are master themes when it comes to data management. Any solution should be built to accommodate continuous regulatory change.
Keeping up with growing regulatory initiatives without hindering growth, stability or profitability is the real challenge. But while it is unlikely that costs and regulatory pressures will decrease, continued growth is never a given, and addressing that challenge will require implementing a new operating model for asset managers. Yesterday’s data management best practices aren’t viable in today’s market environment.
To maintain and improve their competitive advantage, asset managers must do more than just change—they must adapt. And this can be much more easily achieved when partnering with the right solution provider.
Over the past few years, regulators have adopted a more prescriptive, hands-on approach to rulemaking in an attempt to better understand the dynamics of the managed investment sector as a whole. The approach is focused on managing systemic risk by collecting and analysing more of the managers’ data. Many of these new and different types of data are much more difficult to source and verify. They need to be sourced from counterparties and service providers, extracted from new applications and then aggregated and normalised into a single data framework that can be used to satisfy multiple new reporting requirements.
Those new regulatory demands have subsequently put quite a lot of pressure on the asset managers’ back-office operations. Firms have had to upgrade their data collection systems and move away from manual processes and spreadsheets, even when their risk assessment and capture practices were reasonably strong, in order to adopt automated data capture systems capable of meeting shorter and more frequent reporting deadlines.
This shift has been particularly noticeable among the larger asset servicing firms, many of which have begun scrutinising their traditional operating models in order to cut costs and improve efficiency. Many firms have brought in new management teams in 2015 with the mandate to do just that, but without diminishing quality of the service.
These initial changes firms are making have helped alleviate some of the regulatory cost burden, cut down the risk inherent in spreadsheet dependence, and helped to make some improvements to operational efficiencies and scalability through automation.
But the reality is that the regulatory push for a more transparent industry is far from being over, and the recent enhanced data reporting rule proposal from the US Securities and Exchange Commission is the latest sign that transparency reporting mandates and costs will continue to be on the rise.
Partnering for success
As regulators have expanded their post-crisis focus to protect investors and manage systemic risk, we have seen several firms explore options for outsourcing data management to a single, centralised platform provider that acts as a vendor of record for managing regulatory data.
In many cases this can be a sensible decision, as much of the cost for complying with the latest regulatory demands shifts to the vendor and lessens the burden placed on the asset manager.
Furthermore, building technology in-house often progresses at a very slow pace, which increases the risk that the technology is obsolete by the time it comes in to use. In-house builds can also suffer from infrequent upgrades and enhancements, leading to decreased performance over time.
Hybrid outsourced solutions pieced together from multiple vendor products lead to a more fragmented back office, which eventually impacts the overall efficiency. Many firms are using too many single-point vendor applications that are often limited in their ability to integrate with and reuse existing data from other systems.
In order to achieve greatest system efficiency and business flexibility to address current and future regulatory requirements, asset managers should look for a solution partner that can leverage the right functionalities to efficiently reuse data and rapidly develop new reporting modules when needed.
Flexibility and adaptability
In this new regulatory era, data transparency and accountability for large-scale data collection is soon to be the norm, and data inaccuracies can no longer be tolerated. Asset managers need to focus on these key areas to ensure that they are best prepared to meet new and future regulatory deadlines.
In this sense, flexibility and adaptability are master themes when it comes to data management. Any solution should be built to accommodate continuous regulatory change.
Keeping up with growing regulatory initiatives without hindering growth, stability or profitability is the real challenge. But while it is unlikely that costs and regulatory pressures will decrease, continued growth is never a given, and addressing that challenge will require implementing a new operating model for asset managers. Yesterday’s data management best practices aren’t viable in today’s market environment.
To maintain and improve their competitive advantage, asset managers must do more than just change—they must adapt. And this can be much more easily achieved when partnering with the right solution provider.
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