Rise of RegTech to Trigger Transformation of the Asset Management Back Office in 2017
Confluence Predicts the Industry’s Embrace of RegTech will be the Tipping Point That Drives Efficiency
December 15, 2016
PITTSBURGH and LONDON – (Dec. 15, 2016) – Over the past year, the asset management industry has been met with new rounds of regulatory requirements that are promising to put new strains on industry operating models. Though firms have certainly made some headway in improving their approaches to data management, they have still struggled to leverage automation to improve back-office processes, despite a long-standing desire to do so.
Confluence predicts that the rise of RegTech in 2017 will trigger a transformation of the asset management back office. Improved data management models combined with innovative technology solutions will finally begin to deliver long-sought operating model improvements through automation.
A subset of FinTech, RegTech consists of technologies proven to facilitate the delivery of regulatory re¬quirements faster and more cost-effectively than existing capabilities. For asset managers, RegTech will be particularly meaningful in solving complex regulatory data management challenges and complying with condensed reporting cycles.
"Next year will be a pivotal year in the future of the asset management industry," said Todd Moyer, Executive Vice President, Global Business Development at Confluence. "While there are no quantum leaps that can be realized in one calendar year, we've already begun to see rapid adoption of the belief that RegTech will have transformative impacts on the industry. We believe this will be a multi-year process, but we also believe there will be fundamental changes that occur in 2017 that will set the stage for the reshaping of our industry."
Confluence predicts three major changes across the asset management industry next year:
- The RegTech initiative put in motion by UK regulators will spread globally as firms turn to disruptive technologies to manage new regulatory requirements
- RegTech's promise will be the tipping point for achieving long-sought efficiency through automation in the back office
- Asset management firms that embrace RegTech will be better positioned for longer-term success as the industry moves into the era of digitalization
The RegTech initiative put in motion by UK regulators will spread globally as firms turn to disruptive technologies to manage new regulatory requirements
The idea that RegTech will be a driver of progress across the industry will spread quickly among asset managers, their service providers and regulators. The first reference to RegTech came in a March 2015 report from the U.K. Government Chief Scientific Adviser. After the FCA co-opted the term in late 2015 in a plea to the European market for input on how to use technology to solve regulatory challenges, RegTech began to take on a life of its own. The Hong Kong Monetary Authority and Securities and Futures Commission (SFC) said in November that they see major opportunities for technology to meet regulatory requirements. Regulators in Australia, Canada, Japan and Singapore have echoed the SFC. In 2016, the global industry will embrace the trend.
"There have been very few terms introduced by regulators that have sparked the imagination and aspirations of the industry like RegTech," Moyer said. "That is very much a function of the pressure that regulatory regimes have placed on the asset management back office over the last several years, but it also is an indication that the industry is motivated and ready to transform the back office to the same extent that the front office was transformed a decade ago. Firms are hungry for change. RegTech solutions that can deliver that change will be sought after in 2017."
RegTech's promise will be the tipping point for achieving long-sought efficiency through automation in the back office
The collective buy-in to the concept of RegTech will expedite user adoption among asset managers and their service providers as the industry seeks to open the door for full-scale automation. A central goal among asset managers for nearly a decade, back-office automation has remained fairly elusive for a number of reasons, including widespread fragmentation of back-office data, processes and technologies. While challenges in the back office will certainly persist, RegTech will ignite a shift in the industry's mentality.
"A year ago, asset managers were struggling to cope with data challenges that new regulatory mandates created. It's a challenge our industry has faced for several years," Moyer said. "The conversations I've had in the last several months have been different. Firms are beginning to view RegTech as a way to reduce reporting timeframes well below regulatory-mandated deadlines, not just meet a minimum threshold. The industry has started to view this as a way to streamline business and improve their overall operating models. We definitely weren't having those types of conversations in 2015."
Asset management firms that embrace RegTech will be better positioned for longer-term success as the industry moves into the era of digitalization
Adoption of RegTech and the promise of efficiency that it brings is just the beginning of an industry-wide journey to revolutionize how it does business. Firms that actively embrace this shift to a new digitalization 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.
"Implementing RegTech solutions is one of many steps that will change the way our industry works," Moyer said. "Achieving continued efficiencies through automation is just the beginning. The long-term trend is really about the digitalization of the asset management industry and what that can deliver to investors. We expect firms will begin to look at how this shift will impact all aspects of their business, from investor engagement to what skill sets their staff will need to ensure the full value of automation and digitalization is achieved by the business. Those firms that are beginning to embrace the positive disruption that RegTech promises for their business are the firms that will transform themselves and be best positioned to thrive in years to come."
Confluence is a global technology solutions provider delivering innovative products to the worldwide money management industry, to meet asset managers’ and service providers’ performance, reporting, analytics, risk and data needs. With the recent acquisition of StatPro, Confluence offers its clients a broader range of data-driven managed investment solutions including post-trade regulatory and shareholder reporting, performance and attribution, portfolio analytics, and asset data services and data management, delivering a full technology suite to the front, middle and back office. Headquartered in Pittsburgh, PA, Confluence serves the international fund industry with locations across Europe, North America, South Africa, Australia and Asia.