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Smart technology to improve compliance in the remote working era

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Quick Read

The transition to remote working caused by COVID-19 has not made compliance any easier. Diverging global regulatory environments caused by de-globalisation is compounding an already complex issue. This quick-read addresses the growing compliance challenges and looks at how the use of smart technology can automate inducement monitoring, improve research fee validation, streamline the investment process and minimise operational risk.

  • Addressing compliance in the era of remote working
  • Proactively managing increasing transparency requirements
  • Cloud-based, NLP technology to win in today’s environment

“The only role that has not transitioned well into the remote working era, is that of the Compliance Manager.*”

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The increasing challenge of compliance monitoring in the era of remote working

Coronavirus has changed the working environment of nearly everyone around the globe. As a result, our inboxes and news feeds have been filled with research reports on what impact the transition to remote working will have on the way we interact with our clients, colleagues and stakeholders. Debates on the outcome of this shift have been heated; however, there is proof, both anecdotal and data-driven that productivity and efficiency levels will either stay constant or even, in some cases, improve. The one department, however, where experts have been less optimistic about the impact of remote working, is the compliance department. The Summit for Asset Managers in May 2020 provided a good opportunity for compliance leaders to discuss the additional challenges that the current working environment poses and identify ways in which these challenges can be addressed. One Head of Compliance of a medium sized asset manager noted that not being in the office creates a significant increase to the risk of research inducement and felt it reduces his monitoring capability by 50%. The speaker went on to point out that increasing downward pressure on pricing and turbulent market environment exacerbate this issue still further, decreasing the amount of time portfolio managers and sales professionals have to dedicate to fulfilling compliance obligations.

Proactively managing increasing transparency requirements

The worldwide convergence of financial regulation that was experienced in the aftermath of the 2008 financial crisis has slowed down, if not reversed over the past year. The combination of Brexit, a MiFID II review by the European Commission and the SEC’s reluctance to adopt MiFID II legislation has resulted in the playing field for global research payments – and research access – being unlevel.

Research carried out by Frost Consulting in conjunction with Evercore ISI found that US fund managers are spending 4.1 times the amount on research for global equity mandates versus European managers. This corresponds to a like-for-like outperformance of US managers versus European managers.** The research paper notes that myriad factors contribute to fund performance, but research is an important input. The relative outperformance of US funds versus their European counterparts over the surveyed period explains why US asset owners are currently willing to continue to pay for research. However, this will not continue to be the case unless US managers proactively address the global trend towards increasing transparency around research payments which has been instigated by MiFID II and the SEC’s research commission system.

Evidence-based research fee validation

Regardless of the regulatory environment, asset owners are increasingly pushing for evidence-based justification of the amount being paid for research and also for proof that the sum they are paying for research corresponds exactly to its use for their investments alone, and no cross-subsidisation is taking place. In the current environment where we are likely facing global economic downturn due to the long-term effects of unemployment and declining GDP numbers caused by Coronavirus, the focus on research spend versus fund performance will be increasingly important.

With the backdrop of the ongoing COVID-19 crisis, we have spoken to a growing number of asset managers who are looking to put the technology systems in place to enable them to automate and streamline the workflows surrounding their regulatory requirements but also further refine their research fee justification, investment processes and business operations. We have responded to an increasing demand for integrated, automated and connected cloud-based data processing solutions and we have also seen a growing appetite to use Natural Language Processing (NLP) technology to address the increasing transparency requirements surrounding research payments.

Adopting cloud technologies to enable enterprise data management

Implementing cloud-based data management systems presents a significant challenge from a technological, legal and regulatory perspective. However, especially among the small and medium sized asset managers, we are seeing a much greater appetite for cloud-based, connected data solutions because they enable the storage and access of data in a centralised, secure location. One director of a medium sized asset manager at The Summit for Asset Managers reinforced what many of us already know: “regulatory reporting with enterprise data view is much, much easier.” Cloud-based solutions now present significant upside to traditional data management methods in nearly every sense: data security, concurrency, scale, speed, as well as improved integration functionality and near-zero maintenance.

NLP technology – automating the increasing transparency requirements

In recent months, FeedStock has responded to a marked increase in demand for our NLP algorithms, from both the buy and sell-side. Complex institutions are looking for ways to manage the challenge posed by the exponential growth to unstructured data which is generated by their email communications. Our data science team has responded to this by training a multilingual model to classify financial research, email and chat activities into more than 30 different categories. Additionally, we now deploy sentiment analysis models across the email bodies to extract instant, value-generating business intelligence which would otherwise remain hidden. This has equipped our clients with an unrivalled dataset with which to validate research spending and guide procurement decisions.

This A-Team Insight article describes how FeedStock’s AI platform automates the process of manually logging client interactions and provides automatic inducement monitoring. Co-CEO and Founder, Charlie Henderson, is quoted: “We’ve moved from this siloed manual data entry system to a living, breathing organism – and that is the way the world is moving. Data can now help you make commercial-based decisions on a real-time basis, across your whole enterprise.”

Why tech-enabled enterprises will win in today’s regulatory and market environment

The COVID-19 crisis has made a dramatic impact on working habits and email behaviour. For our asset manager clients this has increased the challenge of regulatory compliance, operational risk management and research fee validation. The fund management industry is facing multiple converging challenges caused by increasing regulation, downward pressure on pricing, global economic uncertainty, and the increasing trend for transparency around the investment process.

In this environment it is more important than ever to maximise revenue-generation by automating non-core tasks and minimise compliance risk and costs by harnessing the power of cloud and NLP technologies.


*Spokesperson at The Summit for Asset Managers, May 2020
** Frost Consulting and Evercore ISI, The ROI of Research Transparency – Pivotal Moment in the US? May 2020


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