In today’s rapidly evolving regulatory landscape, navigating the complex requirements imposed on financial institutions and asset managers is becoming increasingly challenging.
A recent webinar attended by high-level expert investment industry commentators saw Brian Blanchard, conducting officer at AllianceBernstein, Stephane Janin, head of global regulatory development at AXA Investment Managers, and Joerg Grossmann, chief product officer at FE Fundinfo, share their insights into cost-effective compliance and the best ways to harness technology to navigate regulatory change.
The Regulatory Avalanche: Managing Complexity and Volume
The term “regulatory avalanche” has been frequently used to describe the sheer volume of new regulations impacting asset managers today. As noted by Janin, significant recent regulatory changes, including the EU’s Sustainable Finance Disclosure Regulation (SFDR) and the evolving frameworks for liquidity management tools, present substantial challenges. Furthermore, cross-border discrepancies between EU and UK regulations, particularly in the post-Brexit era, have added another layer of complexity.
Blanchard echoed these concerns, highlighting the ongoing regulatory pressures faced by global asset managers. He noted that compliance regulations, such as the management company’s oversight responsibilities, are becoming increasingly difficult to navigate. For instance, regulatory requirements around “know your distributor” and anti-money laundering (AML) policies have necessitated innovative solutions to reduce manual oversight and ensure consistency across different jurisdictions.
Technology as a Tool for Efficiency and Cost-Effectiveness
One of the central themes of the webinar was the role technology plays in addressing these regulatory challenges. Grossmann presented findings from FE Fundinfo’s recent research, which surveyed senior asset managers and found that 41% identified regulatory changes as their top concern. As regulations multiply, Grossmann explained, costs increase in parallel, particularly as firms are forced to manage a growing number of non-revenue-generating activities.
Grossmann emphasized the importance of having reliable, accurate data available in consistent formats across different platforms. Standardization and the adoption of new technologies, such as data analytics, artificial intelligence (AI), and regtech solutions, are crucial for streamlining compliance processes and reducing associated costs.
For Blanchard, technology adoption is crucial for managing data effectively. AllianceBernstein, for example, has implemented FE Fundinfo’s public fund solution to manage over a million data points across 2,600 share classes. By digitizing regulatory reporting processes, asset managers like AllianceBernstein can more efficiently handle the vast amounts of information required to comply with different jurisdictions’ regulations.
Balancing Profitability and Compliance
Meeting regulatory requirements without significantly affecting profitability is a pressing concern for asset managers, especially in today’s margin-compressed environment. Outsourcing non-core activities to specialist providers can be a cost-effective solution, as both Janin and Blanchard pointed out. By leveraging hybrid models that combine in-house expertise with external regtech solutions, asset managers can strike a balance between maintaining control over core data and reducing operational costs.
Blanchard noted that outsourcing can reduce the burden on internal teams while still ensuring high levels of oversight. AllianceBernstein, for instance, has partnered with external experts to manage labour-intensive tasks such as regulatory documentation and data dissemination. This approach helps asset managers reduce the total expense ratios of their funds, ensuring they remain competitive in a tight market.
Artificial Intelligence: A Future Shaped by Regulation
Artificial intelligence (AI) is another technology increasingly being adopted in the financial services sector to enhance operational efficiency. Janin discussed how AXA Investment Managers are experimenting with AI tools to automate certain processes while stressing the importance of maintaining human oversight over AI-generated outcomes. For AXA IM, human validation remains critical to ensure the accuracy and appropriateness of AI’s outputs, particularly when they are used to inform client decisions.
AI’s role in compliance, however, comes with its regulatory risks. As Janin highlighted, while the European Commission is actively consulting on AI’s role in financial services, there is concern that premature or over-regulation could stifle innovation. Any regulatory framework imposed on AI must strike a careful balance between protecting consumers and allowing the technology to flourish. If not handled correctly, a stringent regulatory framework could hinder the competitiveness of European asset managers compared to their global peers.
Integrating New Technologies into Legacy Systems
Another challenge for financial firms is integrating new compliance technologies into existing legacy systems without disrupting daily operations. As noted during the webinar, many firms are now outsourcing tasks to specialist providers to reduce the burden of keeping technology up-to-date. This is especially important as regulatory reporting requirements evolve, requiring constant adjustments to calculations and processes.
Blanchard and Janin both emphasized the importance of cross-border consistency in compliance systems. For globally operating firms like AXA IM and AllianceBernstein, integrating technology that can keep pace with regulatory requirements across multiple jurisdictions is essential to ensure compliance and avoid legal risks.
Emerging Technologies and the Future of Compliance
Looking ahead, the panel discussed the emerging technologies that are likely to shape the future of regulatory compliance. AI, blockchain, and distributed ledger technologies (DLT) were highlighted as having the potential to transform how asset managers manage compliance. Blockchain, for example, offers significant advantages in improving transparency and security in AML and KYC processes. By creating a shared, immutable record of identity documents on a blockchain, firms could reduce the repetitive manual checks currently required by multiple jurisdictions.
Grossmann pointed out that while AI and blockchain present opportunities for future-proofing compliance processes, the key to success lies in carefully balancing innovation with regulatory requirements. Standardizing data formats and ensuring the interoperability of compliance technologies will be critical in ensuring these emerging tools can be successfully integrated into the existing operational frameworks of asset managers.
Conclusion
The conversation made it clear that technology will play a vital role in helping asset managers navigate the growing regulatory complexity. As regulatory changes continue to proliferate, firms will need to adopt advanced technologies like AI and blockchain to manage compliance efficiently while maintaining profitability. However, the careful and thoughtful integration of these technologies, alongside continued dialogue with regulators, will be necessary to ensure that innovation does not come at the cost of competitiveness or compliance risks.
The full webinar may be viewed here.
