The main tactical challenge asset managers today face is that buy-side firms not only have to monitor one or two regulations at a time; they have to manage a portfolio of ongoing regulatory initiatives and analyze timing and impact on portfolios and on business lines - both globally and locally. Strategic opportunities exist for asset managers to obtain measurable operational gains from prompt and efficient adaptation of regulatory changes.
IT is key to solving the various regulatory challenges in the global financial services industry. Since every asset manager needs to become regulatory compliant, investing in the appropriate solution architecture is an essential requirement. Choosing a solution provider who invests sustainably in regulatory compliance is crucial to providing asset managers with a competitive advantage.
As part of this, asset management organizations must adopt modern, maintained systems that provide a single coherent book of record and smoothly integrate with the surrounding necessary data flows. Legacy systems do not have such qualities - hence the burning platform on which some firms rely while others move to exploit new regulation and technology as opportunities.
For the asset management industry, the key to gaining competitive advantage in difficult conditions is to maintain an agile business infrastructure with effective change management covering organizational and operational structure, as well as supporting systems. Value is derived through: delivering solutions in a shorter time-to-market; avoiding opportunity costs associated with passivity; focusing attention where it matters during the processing of regulatory initiatives; and increasing agility to keep pace with world-class competitors in today's global marketplace.
The increased uncertainty stemming from constantly changing requirements and an unclear timeline make planning additionally complex for asset managers. The key for firms to capitalize on regulatory change is to proactively align technology with the regulatory process to run streamlined and future-proof IT-enabled regulatory units, leveraging cost-efficient and scalable approaches to regulatory compliance.
This includes enabling the seamless synchronization of product development with regulatory initiatives. The resource commitments for monitoring and involvement differ significantly over time. Timing the resource commitments required for regulatory compliance is key to both controlling operational costs and maximizing acceleration of regulatory efforts.
To apply these fundamental concepts in practice, asset managers must split activities into strategic and tactical components according to time horizon and purpose. In general, two major focus areas apply to regulatory units, namely, the overall monitoring of regulatory activity, screening for relevance and significance (regulatory affairs), and the activities related to actual implementation of the relevant and prioritized regulatory initiatives of strategic importance (regulatory compliance).
From a broader perspective, the effective deployment of regulation in modern financial markets is entirely dependent on supporting technology solutions. With this in mind, the current setup where regulatory discussions are often dominated by legal practitioners is clearly suboptimal and poses an increasing financial and operational risk for asset managers. When discussions and consultations on early levels in the regulatory process focus solely on regulatory intent and consequently omit the operational impact of regulations on IT, processes, systems and costs, the proposed regulatory initiatives turn south.
The crush of accelerated technological development and financial innovation during the latest financial crisis has alerted regulators and asset managers to a few new regulatory hot spots, especially derivatives. To avoid process and system implications of regulatory initiatives becoming unbridgeable gaps, asset managers must implement certain mechanisms. One practical measure is to introduce feedback loops to pump lessons learned from practical implementation by the regulatory compliance units back into the regulatory affairs units.
Winning in today's competitive asset management world requires strategic and tactical engagement in the regulatory lifecycle via the right mix of regulatory affairs and regulatory compliance activities, from regulation-impact assessment, monitoring and solution adoption to timing of communication and market-launch activities. There is no doubt that IT is a key enabler for any asset manager in addressing the various regulatory challenges in today's global financial services industry.
Providing the right-scoped, right-sized regulatory unit setup and ensuring lean and up-to-date IT support for continuous systematic monitoring of risk exposure must be top-of-mind for today's buy-side firms.
Anders Bidsted Anderson is vice president and head of global packaged services at SimCorp. Carsten Kunkel is head of the SimCorp Regulatory Center of Excellence, and manager of legal practices in the Central European market unit.