TRANSFORMATION & ORGANISATION
Fund businesses are emerging from a decade adapting to and digesting a blizzard of regulations. But now rather than being reactive, they must be proactive as they seek to develop new products, streamline process, and boost engagement with clients and partners. Olivia Vinden, head of Fintech & Innovation with the consultancy Alpha FMC, UK gave an overview of the digitalisation challenges for the asset management industry.
by Stephen Evans for ITnation Magazine Summer 2018
Olivia Vinden, Head of Fintech & Innovation – Alpha FMC UK
While understanding the importance of digital, yet the level of engagement in the sector is still at an early stage. A recent survey of industry players by Alpha pointed to 81% saying digital was either “one of our top priorities” or that “we have or will have multiple digital programmes underway.” Despite this, around two-thirds said they were still at the “getting organised” stage with strategies, initiatives and capability in the process of being developed
Change in priorities
“In the last year we have seen a big increase in people diverting money into their digital spend,” Ms Vinden noted. This she explains by the wave of regulations petering out, requirements which Alpha estimates took four-fifths of the industry’s change-budget over the previous ten years. Thus to a large extent it was a question of bandwidth, with teams only having sufficient capacity to cope with these challenges, and crowding out considerations of strategic challenges.
The new requirements also represent a considerable cultural shift. While IT departments have been focused on finding the most cost effective, most reliable solution to imposed regulatory challenges, the digitalisation process requires imaginative, fresh thinking. “The big drive over the last 10 years for COOs and CTO has been to simplify and reduce the number of linked systems and platforms, to reduce running costs, and to have a single source of truth,” noted Ms Vinden.
And all of a sudden there is a dramatic shift of gear. Now the talk is of adding systems on the cutting edge of technology, working with external FinTechs and startups, and potentially increasing complexity. From playing it safe, with the focus being in regulatory compliance, now the drive is towards facilitating fresh thinking and agility, and being a first mover. Yet in Alpha’s survey none of the respondents identified themselves as being “a digital innovator”. Also, 80% of asset managers said they are not prioritising partnerships with FinTechs, despite this move being able to jump-start innovation. Improving client experience and changing the operating model are two key aims.
Yet this caution about being a technology leader is understandable. Few businesses want to attach themselves to a FinTech and a new way of working which could be here today and gone tomorrow. “Asset managers will benefit when they work and share risk together, and this is why it is encouraging to see the growth of FinTech consortia such as #FDC3 or Velocity from the UK’s Investment Association, as these will help risk to be shared,” Ms Vinden commented. Rather than businesses going it alone, she is encouraged to see the emergence of cross-industry partnerships.
Potential areas for gains
In the Grand Duchy she highlighted the recently-created Luxembourg House of Financial Technology startup centre, and the FundsDLT blockchain consortium. She also pointed to her firm’s FinTech showcases which every quarter introduce eight firms to audiences of invited asset managers. Themes for these events have included data, RegTech, and FinTech for investment and trading.
Artificial intelligence is the buzz term of the moment, a phrase that covers a range of technologies that can already offer a variety of solutions. For example there are applications which can scan data for fraudulent activity or detect investment risk. Having the right data architecture and data is a prerequisite for the efficacy of these tools. There are some more speculative ideas like reading social media feeds to gauge how corporate reputations are being affected, with potential insights for investors. Investment insights, risk management, KYC/AML, customer service, customer insights and process management improvements are also all potentially possible.
However, automation may offer the practical solutions asset managers are seeking. “At the moment, I think APIs [application programming interfaces] are the most exciting force for transformation in asset management,” Ms Vinden said. “They enable interaction with service providers, vendors and clients in an efficient interactive way,” she added. For example, there are APIs which provide connections to avoid the systematic emailing of Excel reports. A practice that is still widespread.
Workflow automation or Low Code applications create made-to-measure tools to solve specific problems not catered for by commercially available packages. Alternatively robotics (which Ms Vinden calls the “least exciting” avenue) can be about facilitating communication between legacy systems at the screen level.
Trial and error
Blockchain, however, has so far failed to cut through. This technology could be transformative, but several years have passed in which substantial effort has been made with little result. “We are seeing some interesting blockchain based tools emerging, but this is generally on a small scale,” she noted. The big projects that could affect major change are some way off in the asset management sector. The problems are not always technological, for example, moving governance from the current centralised model to a decentralised architecture is a structural question which has yet to be addressed.
Yet such is the way with new technology, particularly with innovative cutting edge tools coming on stream. The winners from the current innovations will be those who dare to think fresh thoughts, and they will benefit from working together with peers. Revolution is unlikely. Change is assured.