UK asset management firms are busy re-focusing their risk and regulatory priorities, according to EY’s latest Risk and regulation in a digitalised world. The vast majority (85%) are ramping up their preparations for Brexit, up from 71% last year, as the countdown to the transition period begins.
EY’s ninth annual Risk and regulation in a digitalised world study, based on one-to-one interviews with 50 UK asset managers of varying sizes and types, also revealed that firms are reassessing their business models in a number of different areas.
97% of UK asset manager respondents cited data security – whether relating to defense against cyber attacks and cybercrime, maintaining the integrity of data lakes and date warehouses or complying with the new General Data Protection Regulation (GDPR) – as a key focus. The main challenge identified, however, with the majority of firms was allocation of budgets for GDPR programs, given the significant resources already attributed to MiFID II.
Over a third of firms are exploring new technologies to help drive efficiencies and manage regulatory requirements. 39% of asset managers are investigating smart contracts and blockchain and 36% are looking into artificial intelligence (AI) and machine learning – up from 26% the previous year. 31% are also interested in providing robo-advice style services such as digital data control (DDC), self-servicing investing solutions and guided advice.
Many UK asset management firms (69%) are now intending to ‘pay hard’ for research, in response to the additional requirements of MiFID II, meaning their research costs will come off their bottom line as opposed to using client funds. This has been a significant shift from the 23% who planned to do this a year ago.
Dr Anthony Kirby, Associate Partner in EY’s Wealth and Asset Management practice, comments: “The last twelve months have been a period of monumental change. Not only with the sheer volume and cost of major regulatory rules coming into force, but also the fast pace of technological innovation which continues to transform the financial landscape. All that against a backdrop of sustained competitive pressures and political uncertainty – it’s not at all surprising that firms have been re-evaluating their priorities for the year ahead.
“Brexit planning of course is a key consideration, especially with the beginning of the transition period drawing ever closer, but new technologies – along with the associated risks – as well as fees and charges and overall transparency will continue demand close attention for the foreseeable future.”
Another core challenge for asset managers has been business growth, and many have been searching for new and innovative ways to generate returns. Active managers have been increasingly looking at private debt, private markets and alternative investment solutions given the level of current investor demand.
Kirby concludes: “The face of the asset management industry is being transformed. The dual forces of regulatory pressures and the continual desire for growth present fundamental tensions. Firms need to reconcile how they manage the day-to-day while embedding new innovation into their businesses, at the same time as fending off new entrants and disruptors.
“What’s clear though, is that the move towards increasingly transparent, consumer-led models is here to stay. Those that succeed will be the asset managers who can quickly and effectively navigate this new environment.”