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Digital Tech Is Double-Edged Sword For Wealth Firms Wrestling With Red Tape

Tom Burroughes, Group Editor , 17 February 2017


A conference organised by this news service on issues connected with compliance, regulation and digital development found that technology can solve some challenges - but also add new ones.

Compliance with regulation in a digital age is in some ways easier as new technologies remove manual chores, but new ways of commerce also cause new headaches, a recent summit, organised by this news service, has heard.

And with Brexit dominating much debate it is easy to forget that many changes affecting wealth management in Europe continue regardless of the specific way in which the UK leaves the European Union, delegates were told at the event, held towards the end of 2016 in London. (For further details, see this link here.)

The summit consisted of four panels. The first was entitled “Compliance challenges for wealth management. Impact and implications of the Senior Managers Regime”; the second was called “Digitising the whole client lifecycle”; the third was named “Technology and impact: where to spend?”, and the fourth panel went under the banner of “The industry speaks: Q&A. To what extent will technology be a driver for the successful wealth manager for the future?”

Sponsors of the event were ERI Bancaire; ComplySci; Expersoft; HR Comply; Hume Brophy; KlarityRisk; Nodes; ProFundCom and smartKYC.

The first panel, as the title suggests, focused on the Senior Managers Regime, a set of rules designed to make individual senior bankers more accountable for what their firms do. There was also discussion of the European Union’s The Markets in Financial Instruments Directive.

The SMR came into effect in March 2016. It started with banks and its provisions are also covering the wealth management sector more broadly.

On the panel were Bjorn Blanchard, consultant at HRComply; Ian Cornwall, director of regulation at the Wealth Management Association; Simon Elvidge, managing director at 3 Lines of Defence Consulting; Victor Van Hoorn, account director for Hume Brophy, and Rosalyn Breedy, partner at Wedlake Bell.

The SMR may seem like a “long way down the line but it is not [for the wealth management industry],” Elvidge told delegates who gathered at the ETC centre in the City district of London. Some of the regime relates to putting individual responsibilities in firms on a formal setting. He discussed the notion of how organisations must think in terms of a “responsibility map”. One challenge for firms in setting out compliance with SMR is establishing which managers want to take on which responsibilities – this can take time, and firms have less time than they might think. The internal politics, especially in firms with an international matrix management structure, will eat up the time.

One pinch point is that with SMR, it is not always clear if understanding such a regime is primarily about regulation or employment law, WMA’s Cornwall said. “People need to be sure that regulations and employment laws don’t clash,” he said. Wedlake Bell’s Breedy asked what the implications for family-owned firms will be, a sector in which she is closely involved. Another issue, Blanchard said, is how the SMR would affect businesses with presences outside the UK, such as Switzerland. WMA’s Cornwall said the timing of SMR’s rollout for the wealth industry is important, given the need for preparation. He said his association is lobbying to ensure the regime does not apply until the start of 2019. 

Turning to MiFID, panellists noted how, to varying degrees, the EU’s directive runs parallel with, but is also in some ways at odds with, the UK’s own Retail Distribution Review (2013). And the UK's departure from the EU will not likely reduce the chance of MiFID’s impacting the UK financial industry, the audience heard. “Despite Brexit, it’s happening,” Van Hoorn said. Cornwall pointed out that many of the strongest ideas in some EU directives originated from the UK. The wealth industry has had to contend with considerable compliance burdens, not least in terms of IT costs, he continued. Asked if he thought the volume of compliance work had peaked, Cornwall replied: “We are at the tail end of the [financial] crisis…in terms of initiatives in the pipeline.”

Van Hoorn said the EU “now understands that the focus on investor protection needs to be back on the agenda”. 

Asked what panellists thought might be the next big agenda item for EU policymakers, Van Hoorn replied: “I know that for the EU financial advice is going to be the next big initiative...In Europe, the advice market doesn’t really work. You will see a lot of consultation and a lot of policy statements.”

Panel two
The panellists were Hermann Schwalm, independent business consultant; Pablo Diaz de Sandi, global client lifecycle management programme manager at HSBC Private Bank; Dominic Greenwood, chief operating officer, Expersoft Systems; and Verona Smith, head of platform, Seven Investment Management. 

Schwalm made the point that in terms of digital financial offerings, “the younger generation expect it”. The transfer of wealth to younger generations, now in progress, will accelerate this process more generally, he said.

It is vital for wealth managers to have strong data management in place, particularly so they can get on top of issues such as client suitability, Greenwood said. "Technology shouldn't ever get in the way but help humans do their job better,” he said. 

Technology is “indispensable” in helping firms deal with the sheer complexity of today’s investment world, particularly given regulatory requirements, Diaz de Sandi said. 

In a different vein, Smith talked about apps – such as those developed by her firm – that give clients the ability to have an interactive view of their investments and their wealth management “journey”, so they can see if they are on track to meet their goals or need to make corrections and revise assumptions. 

One issue is that of application programme interfaces – these set out how software components should interact and have been an area of widespread activity in wealth management financial technology recently. There are about 1,000 APIs available for financial services today, said Greenwood. This, however, also raises questions about the control of data and information privacy. There are concerns, he said, about the sharing of information. 

Diaz de Sandi, on this confidentiality of data point, said: “We have to realise it is not private banking any more. We have to share information with governments and all of these institutions."

When it comes to asking questions of clients, Greenwood said: “We need fewer questions and [to] get those questions right.”

Panellists agreed that when discussing key performance indicators around digital wealth management, the best measure is the view of clients; one potential metric to track is the drop-off rate of clients and client retention.

Smith, asked about demographics and technology, said the embrace of digital wealth management was not greatly driven by the age of a client; it is too easy to assume that older people are less willing to use technology, she said.

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