By Simon Turner, Wealth and Asset Management Risk & Regulatory Leader, EY
In the space of just a few short weeks, life as we know it – both personally and professionally – has been turned upside down. The scale of the current economic shutdown, estimated to be affecting one third of the global population, has rapidly reconfigured ways of doing business across the world.
Across the asset management industry, firms will have stress-tested their businesses to withstand plausible severe scenarios as part of broader regulatory requirements in place across the financial services sector. Yet, even undertaking the most extreme stress-testing, many firms may not have modelled the current crisis scenario – a flock of black swans event – which has forced asset managers to set up remote working across the entire workforce in a matter of days. Across the UK, and much of Europe and the US, investment teams, dealers, compliance and other supporting functions are now working from their kitchen table.
Notwithstanding the challenges caused by extreme price action and volatility across financial markets through the course of March, the pace at which firms have had to put plans in place has created high pressure and high demands on operational resilience – and rapid response from teams on the ground.
Business continuity protocols have gone from testing a plan on a page to implementation at breakneck speeds. Over the coming days and weeks, it is critical that firms consolidate their processes around key business functions. We have already seen regulators assessing potential regulatory forbearance in some areas, which will provide some relief to current pressures on operations teams.
Through the lockdown, we may inevitably see some relaxation on processes and regulation demands, but firms must continue to prioritise their monitoring and controls. Whether that is around call taping or regulatory reporting, firms should consider practical alternatives; either taking written notes or adding an additional team member to a work stream for oversight purposes.
Any steps towards regulatory leniency must be justified in the context of potential impact on customer outcomes. Whilst flexibility is understood, firms should ensure that the decisions and actions of today stand up to scrutiny at a future date. Firms will be taking steps to enhance monitoring of practical manual processes and to actively consider – and take measures to mitigate – potential vulnerabilities.
Larger, global firms will have challenges on two sides of the coin; they will be managing major new complexities with differing pace and type of measures across regions, but perhaps they have generally had an easier path towards total remote working over the past few weeks than smaller companies. Firms backed by a flexible, cloud-based infrastructure have not had to pull out as many stops to back up servers, or port their entire business onto a new system. But some – notably smaller firms – have been caught off guard by the pace of the shift and have been peddling hard to ensure their systems remain robust and can function remotely.
Of course, just because we are in the eye of a major storm, it doesn’t mean the existing challenges have simply disappeared. In some cases, they have been amplified. Remote working has elevated the risks of cyber-attacks and fraud alerts, and firms will be looking to prioritise reinforcing cyber defences over the coming weeks.
People management will also be critical through this period. Firms should be carefully considering the impact of potential mental health challenges, and widespread illness within their workforce, with the government projecting absence rates in the region of 20 per cent. In some roles, prolonged absence will present key person risks. Firms should consider how roles and responsibilities are cascaded when key individuals or teams are affected – and test third party administrators and providers, whether custodian banks or risk oversight firms, on a similar framework of key risk responses. We talk a lot about operational resilience being critical for businesses if they are to emerge intact at the other side of this crisis, but we mustn’t forget how important ‘people resilience’ is in all pulling through this together.
Through the operational challenges ahead, asset managers must consider how the new environment is affecting their workforce, not merely in their ability to carry out their day-to-day roles, but from a wellbeing perspective. Connectivity is paramount and helpfully, there are a wealth of collaboration tools available to help keep teams connected and joined up. We are seeing current efforts focusing on using technology to maintain wellbeing, a sense of community and productivity. With little clarity on how long the current shutdown may last, people must keep talking to each other to manage their day to day challenges as a team, and do all they can do ensure it’s not a case of thousands of individuals logging on in isolation every day. Many people may struggle to step away from their screen and end their working day given all aspects of life are in the same space. It is critical for people to remember to practice social distancing from their laptop and ensure that time away from work is more than just physically closing the laptop lid.
As we adjust to the new ‘far from’ normal, asset management firms should consider how they will look back on this period in the future. In the years to come the industry must be able to reflect in the knowledge that they did everything in their power to act in both employees and customers’ best interests. The industry’s collective efforts must be focused on investor outcomes and market stability – the pillars of our industry’s promise to customers and society more widely. It is vitally important that firms think about how they are building resilience with these end goals in mind.
Global Banking & Finance Review
Why waste money on news and opinions when you can access them for free?
Take advantage of our newsletter subscription and stay informed on the go!
Banking2 days ago
Open banking: Shaping the future of FinTech and Finance
Top Stories1 day ago
France’s Eramet and Suez pick Dunkirk for EV battery recycling
Technology3 days ago
It is a certainty that new roles will be created as a result of AI – we just don’t know what they are yet
Technology2 days ago
Unravelling the potential of large language models