Asset managers to increase regulatory outsourcing

Regulatory hurdles remain the greatest challenge for asset managers, who will look to outsource compliance burdens as the pandemic eases according to research.  

The study, conducted by Northern Trust in the first quarter of this year, found that 50 percent of asset managers cite the regulatory environment as their top challenge when launching new products. More firms may partner with outsourcing providers for access to transaction data to assist with reporting requirements, according to the report.

Clive Bellows, head of global fund services EMEA, Northern Trust does not think the pandemic would have changed the outcomes of the study.

“Managers’ appetite to do something different has now been intensified,” he says.

“[The financial services industry] has performed incredibly well in the last three or four months, but it does come at a cost. That is that people are the most expensive resource in our business and I think managers are realising that post coronavirus, the ability for them to reduce head count without outsourcing functions is going to be very limited.

“The appetite for managers to do things differently has intensified post us doing the survey, but I don’t think it would have changed the general trend of direction.”

The study also found that 45 percent of respondents are expecting to increase investments into compliance over the next two years, as the regulatory landscape grows more complicated. Bellows cites the Central Securities Depositories Regulation (CSDR) – which has been delayed until February 2021 – and the upcoming London Inter-Bank Offered Rate (Libor) transition as two key areas of concern.

“Regulation is going to continue to evolve and regulators are going to continue to want more data that gives them the ability to track that investors are not being put at risk,” says Bellows.

“And when something goes wrong – and things will go wrong, our industry has shown that there’s a hiccup every now and then – regulators have data that they can then look at to track the sequence of events that led to whatever situation. That is not going to get any easier.”

Data management offers the greatest potential for outsourcing, with 40 percent of firms citing that they are considering outsourcing their data management in the next two years.

Mikkel Mördrup, executive advisor on global transaction reporting, Compliance Solutions Strategies (CSS), says he has seen a greater interest in regtech solutions over the past few months.  

“I expect that firms’ views on regtech due to coronavirus have changed. I believe they have come to realise that regtechs can help not only to gain knowledge, manage data and mitigate regulatory change, but they also are able to decrease operational risk,” said Mördrup in an email. CSS offers reporting solutions for the second Markets in Financial Instruments Directive (Mifid II), the European Market Infrastructure Regulation (Emir) and more.

“My experience from the last months under coronavirus is an increased interest in regulatory reporting solutions from different firms. It is too early to determine if this is primarily related to the regulatory deadlines and CME/NEX Abide or if this is gradually general increased investments in regtech solutions.”

CME and NEX Abide clients need to replace their setups both for Emir and Mifid II transaction reporting in the short term, with Abide Financial and NEX Regulatory Reporting coming to an end by November 30. On a more strategic, long term level firms will likely turn to regtech providers to consolidate data, said Mördrup.

Despite the promise of complication ahead, Bellows does not believe regulations should be pushed back further.

“My personal view would be: Can we just get on with all of this? I think we’ve talked about it for too long … I don’t think it’s any good for our broader industry to have regulation that is discussed, agreed upon and then people collectively decide it’s just too difficult. We all spent too much money getting ready for regulatory change. For me, the worse case scenario is you do all the prep work and then it doesn’t happen. That can’t be in anyone’s best interest for that to happen,” he says.

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