Confluence has announced a series of predictions for the operations side of the fund management industry in 2018. Driven by SEC Modernization and continually changing regulatory requirements, Confluence foresees a year of anxiety but eventual positive systemic change, as firms work to achieve efficiency while meeting a broad range of back office demands.
Confluence predicts three major impacts across the asset management industry next year:
- RegTech will make way for a “DataTech” movement in business operations across the back-office ecosystem
- The data-intensive focus of the Securities and Exchange Commission (SEC) will spur industry adoption of data analytics in fund compliance and governance
- Regulatory anxiety will prevail as the future of new regulations remains unresolved
“We expect significant, measurable transformation across the asset management industry in 2018,” said Todd Moyer, Confluence’s Chief Operating Officer. “While the implementation of SEC Modernization is the most obvious driver of that change, we believe that back-office professionals will see this as a rare opportunity to transform their operations in a way that goes beyond compliance to harness data in new and powerful ways for their businesses and their clients.”
RegTech will make way for an ecosystem-wide “DataTech” movement in financial services technology
As asset managers have embraced RegTech for the value it delivers by leveraging data across a multitude of regulatory forms, Confluence expects that in 2018 the same impulse will impact the broader fund servicing ecosystem. The result will be a “DataTech” movement in the fund servicing back office where the same data is used to produce a variety of financial, marketing and statutory reports, eliminating process proliferation and redundant data processing.
The back-office process, currently designed and optimized around production of a deliverable, will now be designed and optimized around shared data. With shared data as the focus, operations teams will work to eliminate redundancy by processing the data once and then exporting it in as many formats as needed.
This movement will be a strategic step toward real digitalization in the fund servicing industry.
The SEC’s focus on data will spur industry adoption of data analytics in fund compliance and governance
Confluence believes that asset management professionals will take a comprehensive look at the new reality of SEC Modernization and the avalanche of machine-readable data that will be provided for regulatory analysis. As a result, employing data analytics within their own compliance operations will become a necessity, not an option. The arrival of SEC Modernization means that in 2018, asset managers will need to enhance their compliance and governance practices to ensure readiness for a new type of SEC exam; that readiness will necessitate that data analytics be applied internally across back-office operations.
With Form N-MFP and Form PF, the SEC has shown its ability to collect and utilize data to produce detailed statistical reports and bring enforcement actions resulting from their data analytics. With SEC Modernization and Form N-PORT, the SEC will hold an unprecedented amount of fund data in machine-readable format, all ripe for analysis. Asset managers will need to mirror the SEC’s data analytics when facing an exam, adding staff and conducting mock analyses as a part of their overall mock exam preparedness process.
Regulatory anxiety will prevail as the future of new regulations remains unresolved
While 2018 will be a year of positive change in the industry, asset management professionals will continue to feel anxious and uncertain through 2018. The future of Rule 30e-3 (electronic delivery of shareholder reports) and the Use of Derivatives by Registered Investment Companies and Business Development Companies will almost certainly remain unresolved, and the Investment Company Liquidity Risk Management Programs will continue to be a “will it or won’t it” situation through most of next year.
“The Scout’s Motto of ‘Be Prepared’ will continue to be the watchword for the asset management industry in 2018,” said Moyer. “There won’t be easy answers for the operations side of asset management next year, but we believe there will be unique opportunities presented by taking a data-centric approach. The transformation may start with fulfilling regulatory requirements, but it most certainly won’t end there.”