Beyond Compliance: Outlook for 2018

Date: January 29, 2018

As we begin 2018, I am reminded of the remarkable evolution that has taken place in the fund servicing industry in the decade following the market downturn. It’s hard to imagine the pre-crisis era when static human disclosures and documents were considered good enough for regulators. 

The post-crisis shift in focus from investor protection to systemic risk and the regulators’ new appetite for data brought intensive data-centric regulatory mandates that required machine readable output. Forms such as AIFMD, Form PF, Form CPO-PQR and, the most intense one coming this year, Form N-Port have changed the landscape of regulatory reporting and there is more to come. Along the way RegTech emerged. With it we have seen the value of leveraging the same data across multiple outputs and the need to embrace the Cloud and emerging technologies for greater speed, efficiency and flexibility.

Here on the Confluence blog, we have talked extensively about data accuracy, consistency and centricity over the past twelve months and more, and we defended the idea that RegTech was a powerful driver of progress across the industry. Given the success of our Unity NXT® Regulatory Reporting platform, we can say that there was clearly a need for such solutions in the market. The concept of RegTech has spread like rapid-fire among asset managers, their service providers and regulators, and although the movement started out as an answer to regulatory pressures and compliance needs, I am convinced it won’t stop there. As firms continue to embrace RegTech solutions throughout the next year, I predict that this momentum will make way for a “DataTech” movement, spanning the entire financial services technology ecosystem.

More precisely, I believe that the fund servicing back office, the place that for many years has been quite reticent toward automation and change, will be a main target. The back office uses the same data several times over to produce a variety of financial, marketing and statutory reports. This makes it ripe to eliminate process proliferation and redundant data processing, both of which can go a long way to enable efficiency gains. Back-office processes, currently designed and optimized around the production of a deliverable, will now be designed and optimized around shared data.

With this slight change in focus, data reusability and data sharing become the center piece of the process, and operations teams will work to eliminate redundancy by processing the data once and then exporting it in as many formats as needed. This is a strategic step toward real digitization in the fund servicing industry and will allow firms to capitalize on the operational and cultural changes that started when RegTech solutions first appeared.

But even as 2018 looks to be a year of positive change in the industry, asset management professionals will continue to feel a little anxious and uncertain because of the rigorous stance taken by most regulators. Of particular note is the SEC with its Modernization rule that will require enhanced compliance and governance practices. The many changes to come, whether they have been expected for many years or are only just making their way to the regulatory agenda, will continue to put pressure on firms.

So while there is uncertainty and pressure, there is great upside. DataTech, in particular, provides firms with a future roadmap to data centricity across fund operations. I see great value for firms who embrace the Cloud and emerging technologies to position themselves for greater speed, efficiency and flexibility. I believe there will be unique opportunities up for grabs and expect asset managers and servicers to focus on technology and partners that will go the extra mile with them to achieve these lofty goals.