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What is increasing asset manager interest in RegTech?

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APR is supposed to be a very resourceful tool when it comes to the context of assessing the amount of interest levels which you can have on your fund or resources.

By Carl Thorsen, ClauseMatch

Until recently, there wasn’t a great deal of interest in regulatory technology (RegTech) from the asset management industry.

It is no news, that in the past, much of the regulation aimed at buy-side entities was less complex than the regulation aimed at the sell-side, and as a result, there wasn’t an urgent need for asset managers to adopt RegTech. Often, the costs of implementing new technology simply outweighed the benefits, particular for smaller buy-side firms with limited resources.

However, regulators have set their sights on the buy-side as well as the sell-side over the last few years, and consequently, regulatory requirements for asset managers have increased sharply. This year alone, we have seen the introduction of the Markets in Financial Instruments Directive II (MiFID II), the Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation, and of course, the General Data Protection Regulation (GDPR), which when combined with other new regulations such as the Market Abuse Regulation (MAR), the Senior Managers and Certification Regime (SM&CR) and the Alternative Investment Fund Managers Directive (AIFMD), add significant regulatory and compliance pressure for asset managers and wealth managers.

“It’s no surprise, that buy-side organisations are now increasingly turning to RegTech in an effort to increase efficiency, lower costs and meet enhanced compliance obligations. Asset managers are recognising the value of automation and are embracing the technology in order to ease the regulatory burden.” – Carl Thorsen, VP Business development at ClauseMatch, commented.

Carl Thorsen

Carl Thorsen

Complex regulatory requirements

MiFID II, which aims to make European financial markets more transparent, has been a game-changer for the asset management industry. Whereas many buy-side organisations fell outside the framework of MiFID I, MiFID II has been extended to cover all UCITS (undertakings for the collective investment in transferable securities) management companies and AIFMs (alternative investment fund managers), meaning that regulatory requirements for many investment management companies have suddenly become significantly more onerous. The demands are substantial. For example, not only has MiFID II increased the scope of reportable transactions to include financial instruments trading, or admitted to trading, on all EU trading venues, but it also includes far more demanding ‘best-execution’ disclosure requirements as well as more burdensome transaction recording requirements.

Hedge funds and private equity firms are also feeling the pressure. Only a decade ago, there were very few formal reporting requirements for alternative investment managers. However, the regulatory landscape changed with the introduction of AIFMD as this framework now requires alternative investment managers to report an extensive amount of information to regulators on a regular basis. With AIFMD having over 300 separate data fields to populate, alternative investment managers are finding that they now need to dedicate considerable resources to compliance.

Automation and efficiency

At the core of the increase in interest in regulatory technology from the asset management industry is the desire for efficiency. Indeed, in a recent asset management survey by consultancy firm EY, 85% of asset managers surveyed stated that increased efficiency was a key reason to adopt regulatory technology. “From managers’ perspectives, there is real excitement around the opportunity to do more with less,” says Ben Lucas, a partner in EY’s Wealth & Asset Management practice.

Asset managers have realised that by leveraging the power of technology to automate and streamline processes they can save time, money and resources. Ultimately, this means they can focus more on their main goal, which is managing clients’ money.

Transformational opportunities

Yet it’s not just automation and efficiency that is driving the shift towards the use of regulatory technology, as many innovative RegTech firms are now able to offer their clients so much more. For example, EY’s study found that asset management firms that are embracing regulatory technology are likely to derive significant benefits “far beyond core compliance activities” and that asset managers with more advanced regulatory technology programmes were more likely to highlight transformational opportunities. From predictive analytics to the strengthening of the oversight capabilities of a business, the opportunities available from the use of RegTech are vast.

Challenges remain

However, while more and more asset managers are embracing regulatory technology, there’s no doubt that challenges remain. For instance, 92% of respondents in EY’s survey voiced concerns over the difficulty of integrating RegTech into legacy operating models. Another key concern was data privacy, with 69% of asset managers surveyed identified security as an issue, as they think. Furthermore, many new RegTech firms have entered the market in recent years, so the challenge for asset managers is to identify the firms that can add the most value.

Yet with regulatory demands on the asset management industry likely to continue increasing in the years ahead, RegTech looks set to play an important role going forward. Those that embrace the technology are likely to derive considerable benefits, not only within the compliance department, but firm wide.

Associations bridging the gap between asset management and new technology

RegTech firms start witnessing the growing interest of the buy side in innovative regulatory technology solutions. And, so do the associations. As part of the drive to increase market engagement and awareness, the Investment Association recently created an absolutely new category of membership to accommodate the specific needs of FinTechs operating within asset management and the wider buyside market. ClauseMatch, a London-based RegTech, recently became the very first company to join the Investment Association’s (IA) newly launched FinTech membership category. The new category is designed to boost engagement between FinTech firms and the asset management industry and facilitate the adoption of cutting-edge technologies by buy-side firms. FinTech firms are also being invited to apply to participate in the IA’s FinTech accelerator programme Velocity by 28 September.

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ECB launches small climate-change unit to lead Lagarde’s green push

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ECB launches small climate-change unit to lead Lagarde's green push 1

FRANKFURT (Reuters) – The European Central Bank is setting up a small team dedicated to climate change to spearhead its efforts to help the transition to a greener economy in the euro zone, ECB President Christine Lagarde said on Monday.

Lagarde has made the environment a priority since taking the helm at the ECB, taking a number of steps to include climate considerations in the central bank’s work as the euro zone’s banking watchdog and main financial institution.

She is now creating a team of around 10 ECB employees, reporting directly to her, to set the central bank’s agenda on climate-related topics.

“The climate change centre provides the structure we need to tackle the issue with the urgency and determination that it deserves,” Lagarde said in a speech.

She said that climate change belonged in the ECB’s remit as it could affect inflation and obstruct the flow of credit to the economy.

The ECB said earlier on Monday it would invest some of its own funds, which total 20.8 billion euros ($25.3 billion) and include capital paid in by euro zone countries, reserves and provisions, in a green bond fund run by the Bank for International Settlement.

More significantly, ECB policymakers are also debating what role climate considerations should play in the institution’s multi-trillion euro bond-buying programme.

So far the ECB has bought corporate bonds based on their outstanding amounts but Lagarde has said the bank might have to consider a more active approach to correct the market’s failure to price in climate risk.

“Our strategy review enables us to consider more deeply how we can continue to protect our mandate in the face of (climate) risks and, at the same time, strengthen the resilience of monetary policy and our balance sheet,” Lagarde said.

(Reporting by Balazs Koranyi; Editing by Francesco Canepa and Emelia Sithole-Matarise)

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What to expect in 2021: Top trends shaping the future of transportation

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What to expect in 2021: Top trends shaping the future of transportation 2

By Lee Jones, Director of Sales – Grocery, QSR and Selected Accounts for Northern Europe at Ingenico, a Worldline brand

The pandemic has reinforced the need for businesses to undergo digital transformation, which is pivotal in the digital economy. In 2020, we saw the shift to online and cashless payments accelerated as a result of increased social distancing and nationwide restrictions.

The biggest challenge on all businesses into 2021 will be how they continue to adapt and react to the ever changing new normal we are all experiencing. In this context, what should we expect this year and beyond, in terms of developments across key sectors, including transport, parking and electric vehicle (EV) charging?

Mobility as a service (MaaS) and the future of transportation

Social distancing and lockdown measures have brought about a real change in public habits when it comes to transportation. In the last three months alone, we have seen commuter journeys across the globe reduce by at least 70%, while longer-distance travel has fallen by up to 90%. With it, cash withdrawals for payment has drastically reduced by 60%.

Technological advancements, alongside open payments, have unlocked new possibilities across multiple industries and will continue to have a strong impact. Furthermore, travellers are expecting more as part of their basic service. Tap and pay is one of the biggest evolutions in consumer payments. Bringing ease and simplicity to everyday tasks, consumers have welcomed this development to the transport journey. In-app payments are also on the rise, offering customers the ability to plan ahead and remain assured that they have everything they need, in one place, for every leg of their journey. Many local transport networks now have their own apps with integrated timetables, payments, and ticket download capabilities. These capabilities are being enabled by smaller more portable terminals for transport staff, and self-scanning ticketing devices are streamlining the process even further.

Lee Jones

Lee Jones

Ultimately, the end goal for many transport providers is MaaS – providing an easy and frictionless all-encompassing transport system that guides consumers through the whole journey, no matter what mode of travel they choose. Additionally, payment will remain the key orchestrator that will drive further developments in the transportation and MaaS ecosystems in 2021. What remains critical is balancing the need for a fast and convenient payment with safety and data privacy in order to deliver superior customer experiences.

The EV charging market and the accelerating pace of change  

The EV charging market is moving quickly and represents a large opportunity for payments in the future. EVs are gradually becoming more popular, with registrations for EVs overtaking those of their diesel counterparts for the first time in European history this year. What’s more, forecasts indicate that by 2030, there will be almost 42 million public charging points deployed worldwide, as compared with 520,000 registered in 2019.

Our experience and expertise in this industry have enabled us to better understand but also address the challenges and complexities of fuel and EV payments. The current alternating current (AC) based chargers are set to be replaced by their direct charging (DC) counterparts, but merchants must still be able to guarantee payment for the charging provider. Power always needs to be converted from AC to DC when charging an electric vehicle, the technical difference between AC charging and DC charging is whether the power gets converted outside or inside the vehicle.

By offering innovative payment solutions to this market segment, we enable service operators to incorporate payments smoothly into their omnichannel customer experience that also allows businesses to easily develop acceptance and provide a unique omnichannel strategy for EV charging payments. From proximity to online payments, it will support businesses by offering a unique hardware solution optimized for PSD2 and SCA. It will manage both near field communication (NFC) cards and payments from cards/smartphones, as well as a single interface to manage all payments, after sales support and receipt with both ePortal and eReceipts.

Cashless options for parking payments

The ‘new normal’ is now partly defined by a shift in consumer preference for cashless, contactless and mobile or embedded payments. These are now the preferred payment choices when it comes to completing the check-in and check-out process. They are a time-saver and a more seamless way to pay.

Drivers are more self-reliant and empowered than ever before, having adopted technologies that work to make their life increasingly efficient. COVID-19 has given rise to both ePayment and omnichannel solutions gaining in popularity. This has been due to ticketless access control based on license plate recognition or the tap-in/tap-out experience, as well as embedded payments or mobile solutions for street parking.

These smart solutions help consider parking services more broadly as a part of overall mobility or shopping experience. Therefore, operators must rapidly adapt and scale new operational practices; accept electronic payment, update new contactless limits, introduce additional payments means, refund the user or even to reflect changing customer expectations to keep pace.

2021: the journey ahead

This year,  we expect to see an even greater shift towards a cashless society across these key sectors, making the buying experience quicker and more convenient overall.

As a result, merchants and operators must make the consumer experience their top priority as trends shift towards simplicity and convenience, ensuring online and mobile payments processes are as secure as possible.

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Opportunities and challenges facing financial services firms in 2021

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Opportunities and challenges facing financial services firms in 2021 3

By Paul McCreadie, Partner at ECI Partners, the leading growth-focused mid-market private equity firm

Despite 2020 being an enormously disruptive year for businesses, our latest Growth Index research reveals that almost three quarters (74%) of mid-market financial services companies remained resilient throughout the pandemic.

This is positive news, especially when taking into account the economic disruption that financial services firms have had to go through since the crisis began. No doubt 2021 will also hold its own challenges – as well as opportunities – for firms in this sector.

Challenges outlook

Unsurprisingly, the biggest short-term concern for financial firms for the year ahead involved changing pandemic guidance, with 42% citing this as a top concern. With the UK currently experiencing a third lockdown many financial services businesses will have already had to adapt to rapidly changing guidance, even since being surveyed.

Businesses will also be considering the need to invest in working from home operations, and there may be uncertainty over re-opening offices on a permanent basis.  According to the research 30% of financial services firms are planning to adopt remote working on a permanent basis, so decisions need to be made now about whether they invest more in enabling staff to do this, or in their current office premises.

Due to Brexit, UK financial services firms are no longer able to passport their services into Europe, which may cause problems, particularly in the next 12 months as the Brexit deal is ironed out and the agreement is put into practice. Despite this, Brexit was only cited by 24% of financial firms as a short-term concern. While it’s comforting to see that UK financial firms aren’t hugely concerned about Brexit at this juncture, it is going to be vital for the ongoing success of the industry that the UK is able to get straightforward access to Europe and operate there without issue, otherwise we may see these concern levels rise.

Looking ahead to longer-term concerns for financial services businesses, the top concern was global economic downturn, of which 40% of firms cited this as a worry when looking beyond 2021.

Investing and adopting tech

Traditionally, the financial services sector has been slow to adopt digital transformation. Issues with legacy systems, coupled with often large amounts of data and a reluctance to undertake potentially risky change processes, have meant many firms are behind the curve when it comes to technology adoption. It’s therefore promising to see that so much has changed over the last year, with 45% of financial services firms having invested in AI and machine learning technology – making it the top sector to have invested in this space over the last 12 months.

One business that exemplifies the benefits of investing in machine learning is Avantia, the technology-enabled insurance provider behind HomeProtect. The business has undergone a large tech transformation in the last few years, investing in an underlying machine learning platform and an in-house data science team, which provides them with capabilities to return a quote to over 98% of applicants in under one second. This tech investment has allowed them to become more scalable, provide a more stable platform, improve customer service and consequently, grow significantly.

This demonstrates how this kind of tech can help businesses to leverage tech in order to offer a better customer experience, and retain and grow market share through winning new customers. This resilience should combat some of the concerns that firms will face in the next year.

Additionally, half (51%) of financial services firms have invested in cybersecurity tech over the last year, which allows them to protect the platforms on which they operate and ensure ongoing provision of solutions to their customers.

International resilience

Clearly, there is a benefit of international revenues and profits on business resilience. In practice, this meant that businesses that weren’t internationally diversified in 2020 struggled more during the pandemic. In fact, the businesses considered to be the least resilient through the 2020 crisis were three times more likely to only operate domestically.

Perhaps an attribute towards financial services firms’ resilience in 2020, therefore, was the fact that 53% already had a presence in Europe throughout 2020 and 38% had a presence in North America. This internationalisation gave them an advantage that allowed them to weather the many storms of 2020.

Looking at how to capitalise on this throughout the rest of 2021, half (51%) of are planning overseas growth in Europe over the next 12 months, and 43% in North America. Further plans to expand internationally is not only a good sign for growth, but should further increase resilience within the sector.

Conclusion

While there are many concerns, the fact that financial services businesses are investing in technology like AI and machine learning, as well as still planning to grow internationally, means that they are providing themselves with the best chances of dealing with any upcoming challenges effectively.

In order to maintain their growth and resilience throughout the next 12 months, it’s imperative that they continue to put their customers first, invest in technology and remain on the front foot of digital change.

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