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Why is RegTech a must-have for asset managers?

(Image credit: Image Credit: Tsyhun / Shutterstock)

At the beginning of last year a few articles started spreading the good news that RegTech was emerging and that it was going to create a better and cost-efficient way for asset managers to deal with the regulatory burden.   

Since then, there wasn’t a month going by without a new report by industry players—Confluence included—praising the rise of RegTech and how it is going to change the regulatory landscape.   

Much like FinTech did a few years ago for financial services technology, RegTech marries technology and regulatory compliance functionality to implement more efficient processes. 

But when we started monitoring the merger between regulation and technology in March of 2015, when a report from the U.K. Government Chief Scientific Adviser came out explaining the need for technology to help meet data-intensive regulatory challenges, we saw an opportunity for asset managers to do more than just ease their regulatory burden. That combination of regulatory demands and digital innovation is going to help asset managers to not only comply with condensed reporting cycles but also help them solve more complex data management challenges, therefore reshaping how their back offices operate—a long-standing goal for them. 

Back-Office Automation 

Year after year, the asset management industry is met with new rounds of regulatory requirements that promise to put new strains on the asset management back offices. Though firms have certainly made some headway in improving their approaches to data management, they still struggle to leverage automation to improve back-office processes, despite a long-standing desire to do so. 

In our latest Asset Management Industry Trends survey that we release every two years, our customers stated that for the fourth straight time since 2008 their number one priority is to automate back-office processes.   

It has been a top priority for the best part of the last decade and yet they never really get around to act on it as a key initiative, nor prioritize it to the extent that they would solve their back-office automation challenges to any great degree.   

Instead, as new regulations were introduced, firms purchased numerous point solutions to comply with each one of them. Often these systems were then cobbled together for an end-to-end process, although this approach is far from being cost efficient or scalable, and contributes to the fragmentation of an already inefficient back office.     

RegTech harnesses the power of the Cloud to streamline business and improve overall operating models. Those next-generation integrated platforms allow integration and interoperability and are configurable to current needs. They can also support the changes the firm and their clients might want to see in the future. Adding new data sources or upstream systems is therefore more manageable and no longer require an efficiency trade off.

While challenges in the back office will certainly persist a bit longer, asset managers and their service providers seeking to open the door for full-scale automation can therefore really benefit from implementing RegTech solutions of this kind.   

Solving Data Management Challenges 

The increasing levels of regulation globally and more challenging regulatory expectations are also causing significant operational challenges for firms when it comes to implementing and embedding new regulations and regulatory reforms. Regulatory challenges are now driving the timelines as well as the amount and types of data that asset managers and service providers are asked to manage.   

But regulatory compliance is a complex, time-consuming and expensive task and with major regulations going into effect in 2018, it is clear that the old ways of solving regulatory mandates will no longer do.   

Firms need more comprehensive and more granular types of data on a greater frequency basis if they want to be able to encompass an array of investment types and increased machine-readable reporting formats. Additional headcount does not solve that challenge, but effective data management and technology do.   

This is why leveraging RegTech solutions and their core benefits—data centricity, speed and agility—can transform regulatory compliance.   

There is a need to look at data in a more holistic way throughout the whole organization to be able to view data as an asset. Something RegTech can address.   

Data availability and reusability are essential for helping firms to proof their systems against new demands from regulators and clients alike. A single reporting platform provides firms with the capability to more effectively aggregate and reuse data, as well as to take advantage of consistent and repeatable processes, workflow and exception-based reporting —all benefits where point solutions typically come up short. 

The RegTech solutions that will be able to facilitate the aggregation and reuse of data across multiple filings and regions will be a true asset to any asset manager looking to simplify its regulatory filing lifecycle.   

RegTech Is Here to Stay   

The regulatory burden on asset managers and asset servicers has reached a tipping point and firms are hungry for change. RegTech solutions that can deliver that change will be sought after in 2017. 

Over the last few months, we have seen the adoption of technology at a greater pace than anticipated. Asset managers started to realize that RegTech solutions were capable of solving both data management and back-office fragmentation problems—two long-standing challenges for the industry.   

The journey toward a more consolidated technology and data strategy should begin now but the adoption of RegTech and the promise of efficiency that it brings is just the beginning of an industry-wide remodelling of how it does business. Firms that actively embrace this shift will position themselves for long-term growth and success. Those that do not will risk being increasingly marginalized as changing investor expectations render old models of doing business obsolete. 

Todd Moyer, Executive Vice President of Global Business Development 

Image Credit: Tsyhun / Shutterstock

Todd Moyer
Todd Moyer is responsible for global growth strategy and business development at Confluence, a leader in data-driven RegTech, investor communications and performance and analytics solutions for the global asset management industry.