The European Commission could be seeking to add to the regulatory regime with a new proposal to review the prudential treatment of investment firms, aimed at improving investors’ access to new opportunities and introducing better ways of managing risks. Early next year, as a follow-up to the work of the high-level expert group on sustainable finance, the European Commission is also due to present measures on improving disclosure and better integrating environmental, social and governance (ESG) considerations into the investment mandates of asset managers and institutional investors.
As the wheels of the regulatory machine continue in perpetual motion, how should funds respond to such developments to ensure their compliance, in order to avoid costly fines and reputational damage? Furthermore, is there a way that funds can future-proof their compliance activities in an efficient and cost-effective manner, which avoids funds having to pass on the additional compliance costs in higher fees and charges?
Funds may find the right answer with fintech, or its subset regtech, solutions.
Justin Partington, Group fund solutions leader (SGG)
The good news is that funds may find the right answer with fintech, or its subset regtech, solutions to ease the compliance burden. Regtech describes a set of companies and solutions that address regulatory challenges in financial services and other industries through innovative technology. The UK has been ahead of the curve in pioneering the Regulatory Sandbox Licence, and closer to home the Luxembourg House of Financial Technology that was launched in April this year, which will set up a developer sandbox initiative to allow innovators to test their ideas, with fund technology being a key area of focus. Other Luxembourg-based companies such as KYC3.com, which seeks to manage the client on-boarding process, and Governance.io, which provides a platform for funds to deal with complex data and regulatory oversight duties. At SGG Group, we have deployed new regtech tools for regulatory compliance and reporting, and see increasing client demand for more self-service data in dashboards, and customised investor reporting.
Client demands have also seen the rise of new fintech firms such as Clarus Risk who developed the RiskMonitor® solution to help clients meet the challenges resultant from growing regulatory risk reporting demands. In general, there are three distinct activities that regtech can offer efficiencies:
- organising the data required for reporting;
- analysing risk data;
- generating risk reports.
Workflow