The 2022 Winter Olympics has brought to the fore another batch of sporting superstars all trying to reach the podium. In this blog for Wealth DFM, AutoRek’s Murray Campbell asks what can the asset management and wealth industries learn about going for gold?
According to a recent survey carried out by AutoRek, a perfect winter storm of factors – including skills shortfalls, outdated manual processing systems, increasingly complex trades, and new regulations – has resulted in Olympic dream setbacks for asset and wealth managers, with reconciliations representing the biggest challenge for the gold medal.
And this isn’t the only problem firms in the industry are facing: more support with factors such as operational resilience and the Prudential regulation are in dire need.
It’s a big mountain to climb – but there is an answer. If they put automation at the top of their agenda, firms will be well-placed to come out on top.
When it comes to processes, inefficiencies have long been an expected, and accepted, part of the package. But the proliferation of remote working and redundancies over the last two years have further exacerbated these problems – to such a point that they can no longer be ignored. In fact, over a quarter of firms said that their budget for delivering operational improvements has greatly increased because of the pandemic.
As a result, many firms are turning to digital transformation to help square the circle of improving data integrity and reporting: as many as 95% of the firms we spoke to now have a dedicated annual budget for delivering process automation.
What’s more, many companies are also accelerating other digital technologies such as intelligent automated dashboards for client and customer management and incorporating cloud analytics as their firm’s next significant enhancement.
Navigating the regulatory slalom
While the pandemic has certainly accelerated change, the need for firms to implement automation long predates the last two years.
The constantly and rapidly changing regulatory landscape represents a long-standing challenge for firms, with almost half of respondents citing volume and breadth of regulations as their biggest regulatory challenge. To underscore this point, our research revealed that one in four firms don’t consider themselves well-placed to meet new IFPR requirements, which came into force on January 1st this year.
Meanwhile, Brexit has added administrative burdens to financial trading, with the EU and the UK government yet to deliver the promised reduction of EU-inherited financial services regulations.
All of these factors have converged over recent years to drive growing demand for digitalisation and automation of financial services operations. Almost all financial organisations plan to invest in automation to alleviate regulatory risks and red tape over the next two years – with 40% having earmarked over £500,000 a year for the effort.
Interestingly, there is a relatively even spread of planned investments across Operational Resilience, Prudential Regulation, MiFID II Transaction Reporting, and CASS Operations. This split reflects the fact that digital transformation is no longer an optional bolt-on but a fundamental requirement for reputational management, risk mitigation and maintaining customer confidence.
Automated reconciliations will be central to this effort, providing consistently accurate financial records and regulatory reporting while reducing administrative overheads.
The in-house talent chasm
Against a background of increased demand for automation, the financial services sector faces significant shortages of the necessary technical and digital skills to implement it. 38% of firms pinpointed a lack of adequately skilled staff as the biggest challenge they face in operational processes.
A lack of in-house expertise is also presenting challenges for firms when it comes to effectively navigating a vast automation marketplace and finding solutions appropriate to their size, client base and services. Customised solutions are vital to help seamlessly incorporate new technologies into legacy systems, processes, and policies.
Outsourcing will leave competitors in the dust
There has been a boom in Fintech innovations over the last few years, creating a new imperative for legacy firms to keep pace with emerging technologies. A significant proportion of companies acknowledge a growing threat from Fintech start-ups and the ever-increasing need to focus attention on disruption to maintain their order flow.
Even the best in-house solutions will quickly become dated as the pace of innovation across the industry accelerates. To combat this, companies require up-to-date digital skills to future-proof systems against continued market disruption.
In an environment of fast-paced innovation and rapid regulatory change, legacy systems and digital skills gaps will leave firms exposed and vulnerable to increasing bureaucracy, risk and compliance problems.
But, for those who can understand these problems and are proactive in finding solutions, there is a significant competitive advantage to be gained. By embracing outside expertise and gleaning inspiration from the technologies implemented across other sectors, firms can find themselves in the running for gold – not only future-proofing their own operations and ensuring customer loyalty, but also positioning themselves as the supplier of choice for potential future customers.
Murray Campbell is a Consultant at AutoRek