Fund automation to CSDR: Funds Europe’s top 10 research findings in 2022

The widescale use of faxes in fund distribution was one of the main findings from Funds Europe research reports published over the past year.

Funds Europe conducted four reports this year focusing on Central Securities Depositories Regulation (CSDR) implementation, global automation in the industry, challenges revolving around emerging managers and sustainability.

Here are the top 10 highlights from the research reports you must know.  

‘Navigating the CSDR Landscape‘ report found that lead time was the most common lesson learned from CSDR implementation from the buy side (24%) and sell side (23%) respondents when asked to indicate what they learned from implementing the regulation. 

The CSDR survey further revealed that operational readiness was in the second spot for the buy side (20%), while “risk” took the second spot for the sell side (19%) and the third spot for the buy side (13%). A further 15% of buy side and 17% of sell side responses indicated that lessons learned from “technology requirements” would assist with other settlement regime changes. 

Despite the advances in digital technology, more than two-thirds (68%) of fund management firms and asset servicers worldwide still use fax. This is one of the more eye-catching findings from a global automation survey conducted by Funds Europe. In Asia, fax usage is the most predominant, accounting for five of the top seven offenders.

Client service emerged as the most dominant automation driver within asset management firms, as cited by 75%, followed by revenue expansion (61%). The next most popular drivers are operational cost reduction and regulation (49%), which always feature highly in any operational changes. Luxembourg has the highest percentage of respondents saying ‘regulation’ is a driver of automation (72%).

It is noticeable that Asian countries (Indonesia, Singapore and Hong Kong) have the highest automation rates across all processes. Meanwhile, the UK, Germany and Luxembourg have the lowest average automation rate for several processes, especially client account opening and compliance management, distribution support, and client reporting.

Emerging managers have identified marketing and brand awareness as the biggest challenge they face in the current environment, with many planning to increase funds under management considerably in the next five years. The Funds Europe ‘Emerging Managers Survey’ found.

The second most significant challenge in the investment outlook highlighted by emerging managers was fundraising. As central banks and governments have started to remove the monetary and fiscal support that kept economies afloat during the Covid-19 pandemic – and fuelled the bull market since the 2008 Global Financial Crisis – growth has slowed, and returns from public markets have stagnated or gone into reverse.

Finding environmental, social, and governance (ESG) solutions in their funds’ jurisdiction is the biggest difficulty facing emerging managers in the alternatives space. On the other hand, for emerging managers, the most critical factor when choosing a fund domicile is service quality, selected by 47% of respondents to the survey. The regulatory standards of potential fund domiciles are also a critical consideration when deciding where to launch a fund, with (43%).

‘Governance and the Climate Risk Report’ found that the majority (83%) of asset managers said there is reputational risk if climate commitments are not adhered to, and 43% expect climate change risk standards to become mandatory.

The Governance and the Climate Report revealed that 51% of asset managers indicated a stronger climate-focused approach would be a key focus for product design, and 57% said new products would be aligned with investors’ sustainability preferences.