Three Key Compliance Challenges for Asset Managers

If there’s been one certainty for asset manages over the past few years it’s been this: the regulatory landscape is going to get tougher. At RIMES, we’ve been keeping a close eye on the fast-changing regulatory landscape. It become clear that many of the compliance challenges thrown up by emerging regulations have yet to be adequately addressed. Until they are, asset managers are at risk of stiff regulatory fines and potential damage to their brands. Here are the top three challenges we see facing firms:

1. Regulatory oversight is increasing. Since 2016 asset managers have faced a barrage of new regulations such as the Market Abuse Regulation (MAR) and the Benchmark Regulation (BMR). And regulators are beginning to pursue non-compliance much more rigorously. Last year, for example, 42 administrative sanctions were pursued under MAR and recently the FCA has announced its intention to focus on firms’ readiness to spot market manipulation in the fixed income and commodity asset classes. In the US, meanwhile, the SEC Office of Compliance Inspections and Examinations has announced its intention to focus on areas relating to the protection of retail investors, including around conflict of interests.

2. Asset managers are not yet ready for key regulations. As highlighted by Julia Hoggett, Director of Market Oversight at the Financial Conduct Authority (FCA) in a recent speech, many asset managers have not yet put in place the access controls, surveillance capabilities or operational mindset to comply with MAR. As we’ve seen in the past, some firms are still taking a manual approach to market surveillance, when what’s required is full automation. When it comes to BMR, many firms are struggling to gain an understanding of their benchmarks landscape and put in place fall-back options to cover market withdrawal or material change of critical benchmarks.

3. Compliance teams must be more ‘hands-on’. Thanks in part to MiFID II, direct execution is becoming increasingly common. As this happens, it becomes more important for compliance teams to be able to monitor transactions to ensure there are no conflicts of interest. Compliance teams are therefore challenged to take a more ‘hands-on’ approach and put in place a comprehensive regulatory monitoring framework that’s capable of preventing and detecting orders or trades that could have been executed based on material non-public information. Monitoring of transactions vs. best execution policies to enable amendment of the policy if it is not producing the best client outcome is also now a critical capability for compliance teams.

While the evidence suggests regulatory complexity is a major headache for asset managers, it need not be the case. The market is increasingly providing feature-rich RegTech services that enable compliance teams to overcome these challenges cost effectively and with minimal disruption to the business. Given the scale of the compliance challenge facing asset managers, these RegTech services offer the most promising response.

Contact us to receive more information on RIMES’ award-winning RegTech services, which handle the many complex challenges of regulatory compliance.

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