Cost-effective compliance: harnessing technology to navigate regulatory change

Regulatory compliance remains a complex and costly challenge in the ever-evolving asset management landscape. The industry faces increasing pressure from major regulatory developments such as the Sustainable Finance Disclosure Regulation (SFDR), the Digital Operational Resilience Act (DORA), and the Retail Investment Strategy (RIS). These regulations reshape operations, introduce new reporting and transparency requirements, and require consistency across different regions and jurisdictions. Additionally, regulations differ by region and jurisdiction, increasing the complexity and cost of doing business. Amid these challenges, leveraging technology, outsourcing, and adopting a hybrid approach are emerging as crucial strategies to manage complexity, mitigate costs and enhance operational efficiency.

Balancing Compliance and Profitability
Asset managers today are grappling with an expanding array of regulatory requirements that can significantly impact business operations and profitability. Regulatory compliance, while necessary, drives up costs. More broadly, general business costs are increasing, particularly in areas that are not direct revenue-generating activities. A recent industry survey conducted by FE fundinfo shows that 41% of asset managers view regulatory change as the greatest threat to their operations, further exacerbated by tightening margins and rising non-revenue-related expenses.

Major regulations like SFDR, DORA, and RIS are just the beginning. As these changes roll out, asset managers are under increasing pressure to ensure compliance while maintaining profitability. Exploring innovative ways of reducing compliance's financial and operational burdens becomes essential.

One effective solution is outsourcing non-core tasks. By working with specialised vendors, asset managers can delegate critical regulatory-related activities to external partners to benefit from economies of scale and rely on expertise and technology that make sure these activities are up-to-date with constantly evolving regulations. 

This outsourcing strategy can be coupled with a hybrid service model that allows for internal and external management of regulatory tasks, thus ensuring compliance. Strategic partnerships with fintech firms and specialised technology providers, such as FE fundinfo, offer additional support in overseeing distributor compliance, managing cross-border regulations, and producing regulatory and marketing documents that fulfil regulatory requirements.

Anticipating regulatory risks and adapting early are also key strategies for minimising the cost burden of compliance. Asset managers who can proactively monitor and influence regulation changes are better positioned to control compliance costs, thereby protecting their bottom line.

Future-Proofing Compliance with Emerging Technologies
As asset managers seek more efficient ways to navigate compliance, technology has become a powerful tool. RegTech solutions, artificial intelligence (AI), and data management and analytics are transforming how compliance is managed, from automating repetitive processes to improving the accuracy and timeliness of regulatory reporting.

AI, in particular, plays a pivotal role in regulatory reporting, enabling asset managers to enhance efficiency through automation. However, human validation - at least for the time being - remains essential to ensure that AI-driven outcomes are accurate and compliant. Combining AI’s efficiency and human oversight creates a balanced approach to compliance that reduces costs without sacrificing accuracy.

Standardising data flows across jurisdictions is also a critical element in this process. Leveraging technology solutions such as public fund management platforms and fintech innovations allows asset managers to efficiently handle jurisdictional differences, reducing the administrative burden of compliance.

Despite the advantages of new technologies, integrating them with legacy systems remains a challenge for many asset managers. Working with specialised providers ensures compliance solutions remain current with evolving regulations, allowing asset managers to focus on their core activities without the added pressure of constantly updating their systems.

Technology offers solutions for improving transparency and security in compliance-related tasks such as anti-money laundering (AML) and Know Your Customer (KYC) processes and can ensure greater accuracy and accountability in managing compliance data, especially as asset managers increasingly rely on data integrity to meet regulatory requirements.

The road ahead
The regulatory environment in asset management will only grow more complex, making it imperative for firms to adopt forward-looking strategies that integrate technology and external expertise. By leveraging AI, RegTech, and data management tools, asset managers can stay ahead of regulatory changes while minimising the impact on profitability.

Outsourcing non-core compliance functions, adopting a hybrid management model, and staying proactive about regulatory developments are essential steps toward achieving cost-effective compliance. The ability to anticipate and adapt to regulatory changes, combined with the strategic use of technology, will enable asset managers to navigate these challenges without compromising their operational goals.

In this rapidly changing environment, innovation and foresight are critical to successful compliance. Asset managers who embrace these technologies and strategies today will be well-positioned to thrive in an increasingly regulated future, turning compliance challenges into opportunities for greater efficiency and long-term growth.

By partnering with specialised providers like FE fundinfo, asset managers can ensure compliance without compromising efficiency. This approach allows them to transform a regulatory burden into a strategic advantage, enhancing transparency, reducing risk, improving operational processes and ultimately building stronger relationships with their clients.

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