Buy-side firms rethink approach amid changing regulations

Many buy-side firms are reconsidering how they do business in the current regulatory environment.

Financial regulations more stringent
Financial institutions – including investment managers – are coping with more stringent reporting requirements as a result of regulatory regimes such as the Dodd-Frank Act and European Market Infrastructure Regulation.

These industry participants are struggling to keep up with more severe compliance requirements in the post-financial crisis environment. Lawmakers and regulators enacted several landmark reforms after this tumultuous event in an effort to ensure proper risk management in the broader financial services industry.

Institutions respond to challenges
Now, many financial institutions are changing their approach at the most basic level in an effort to cope with this situation. This trend showed up in a recent industry survey – conducted by The Economist Intelligence Unit in conjunction with a provider of solutions to financial services firms – where 67 percent of participants indicated they are responding to alterations in market structure (32 percent) and regulation (35 percent) by modifying their business model.

The survey found that financial institutions are considering these massive changes because of their current landscape, or “new normal,” as the survey called it. This environment is always evolving, has stringent regulations and is becoming more global all the time.

“The heightened volume and complexity of regulation and extensive industry restructuring have forced firms to rethink their business models on an unprecedented scale,” said a senior vice president of strategy and mergers and acquisitions at the service provider. “This trend is set to continue in force through the remainder of the decade. Firms that are more adaptable to creating a proactive response to the changing market needs are more likely to differentiate themselves and outperform.”

How buy-side firms can cope
While the survey outlined various challenges, it also provided solutions that buy-side firms can use to overcome their difficulties. The most popular approach picked out by participants – or 39 percent of those taking part – was risk management.

Another 34 percent said that investing into products – for the purpose of both singling out one’s offerings and also bolstering innovation – was more important. Forty-three percent of respondents singled out developing automated processes – which combine audit trails, risk management and compliance activities – as the best way to deal with the rising governance and regulatory demands they encounter.

Cost management
Buy-side firms should keep in mind that as they consider solutions for the new normal, keeping effective cost management in mind is important. Institutions are already coping with numerous cost pressures – including those associated with growing benchmark data needs, compliance processes that require more man hours and rising costs for their information.

Being prepared
Taking on these industry challenges – and also navigating the complex regulatory framework – can be quite difficult. Buy-side firms that want to single out the most effective approach might benefit from obtaining a consultation from RIMES Technologies. By doing so, they can identify areas where they will encounter the greatest challenges and address them effectively.

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