How to effectively respond to transparency pressure from regulators and investors

Increasingly, there is greater scrutiny around how investment managers operate, and a demand by regulators and investors for more transparency and clarity over fund managers’ decision-making processes. This increased scrutiny is having a big impact on investment data – how it’s managed, who sees it, the role it plays in decision-making – meaning it’s crucial for data managers to respond using means that are as low risk and accurate as possible. This is a challenge that many asset management organisations face, and at the crux of it is a fundamental decision: to take a strictly compliance-based approach and implement only what is mandated, or go beyond that and focus on enhancing the investor experience, delivering transparency over and above what is necessary, and thereby creating a competitive advantage.

Whichever approach an investment management business takes, they can leverage technology to deliver it. The market’s expectations on transparency will continue to rise, and as regulators and clients’ expectations change the need to be more transparent and accurate will only increase.

Doing only what’s necessary

Typically, regulations change and this has an impact on size and complexity in investment data needed to be collected and analysed. Continuing to use legacy systems such as spreadsheets will only make compliance and regulatory challenges more difficult to meet. Due to the amount of manual effort involved, they are time-consuming and prone to error – spreadsheets result in low-quality data which won’t stand up to regulatory or investor scrutiny. Based on the bare minimum of what is required, digital technology is a massive enabler that allows an investment management business to deliver better quality data to regulators and investors at a marginal cost.

An opportunity to create a competitive advantage

The issue of how to respond to transparency demands can be seen as a way for a business to increase its product offering. For this approach, leveraging digital technology is critical. Consider the Environment, Social and Governance (ESG) challenge, any investment management business dedicated to improving transparency must have a strategy in place with which to respond. There is increasing pressure to factor ESG into investment decisions, which necessitates a broad and complex set of metrics. This is one of the biggest transparency challenges investment managers face because it’s not always easy to drill down into a fund and see exactly where the investments originate.

It’s often a complex task to discover exactly what funds are being invested in. When obtaining full disclosure is difficult, there’s an even greater challenge in finding out an investment’s ESG rating.

The business that decides to do only what’s necessary still needs to get into a position where they can respond to changes in requirements quickly and effectively, without significant implementation or operational costs. Those business’ seeking to leverage competitive advantage and deliver an enhanced customer experience likewise need to position themselves so they can deliver value to clients over and above their competitors. Either way, it can’t be done without technology.

The ‘murky’ world of legacy systems

At AlphaCert, when we refer to outdated or legacy systems, we’re almost always thinking of spreadsheets. Used prolifically in the investment management industry, spreadsheets have endured, even as businesses are becoming more and more concerned with transparency and compliance. They don’t however, offer the same low-level granularity – especially in areas of reporting and transparency – as a digital solution. Particularly true when data is collated from disparate systems with no single source of truth.

With spreadsheets, and similar legacy systems there’s so much manual work involved, they’re prone to error. If wrong information is fed into a spreadsheet, whether by mistake or intentionally, there are no audit trails that may lead to the identification of the source – which not only hinders auditability, but lowers the quality of the data being produced.

Leveraging the AlphaCert solution for greater transparency

A key feature of our solution is its ability to scale processes. It means that they can be systemised and repeatable; you only need to set it up once, which means you save time by not having to repeat the same process manually. We mentioned the lowest level of granularity in terms of transparency; with AlphaCert, everything is kept at this level. From that point, it’s very easy to show where numbers come from and how they are aggregated, but they always tie back to the base data – and this helps to keep regulators happy when it’s time for reporting.

For clients, our solution makes it possible to ‘do more with less’ – i.e., once the data has been fed into AlphaCert, it is then systemised and used to address multiple use cases (one of which is sending data out to regulators). However, you can meet this and other use cases by storing your data centrally which makes it quicker to get data to clients and regulators.

A good example of AlphaCert in action is ensuring transparency and compliance for Portfolio Holdings Disclosure (PHD) reporting in the Australian market. An Australian AlphaCert customer had been using a manual, multi-month PHD process. We were able to improve their transparency and compliance processes, reducing it down to only two weeks, instead of months.

As digital transformation in the investment management space continues to accelerate, so too will demands for transparency, and increasing regulatory and compliance pressure. Whichever approach your business decides to take in responding to these demands and challenges, you need to leverage technology to ensure you’re out in front.

If you’d like to see the AlphaCert solution in action, book a personalised demo. If you’d like to learn more about how an investment data management platform can improve transparency, help you respond to regulatory demands and support your strategy, download our eBook: Responding to disruption.

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