NEW RESEARCH – Global Compliance, Innovation Trends In Wealth Management

Harry Keir Hughes, 6 November 2017


The publisher of this news service has launched a major new research report on global compliance and innovation trends across seven key markets.

WealthBriefing and research partners Appway and Deloitte are delighted to launch Global Compliance and Innovation Trends in Wealth Management - our first report examining these themes in tandem across seven key markets.

This cutting-edge report, authored by Head of Research, Wendy Spires, brings together insights from seven global WealthBriefing studies with analysis from 18 expert contributors at Deloitte and Appway, as well as commentary from Chris Hamblin, Editor of Compliance Matters, the flagship regulatory publication of this group. It truly is essential reading, aimed at helping firms strike a fine balance between being prepared for the onslaught of regulatory changes coming up in their jurisdictions, while still staying ahead of the curve on innovation. 

We hope that this report will shine a light on the industry’s most pressing issues as a whole, including how wealth managers can deal with the squeeze on their revenues and profitability, which - combined with spiralling compliance costs - has been the dominant theme of industry dialogue in recent years. 

Indeed, as explained in the report, compliance costs are eating up 4% or even more of revenues, with many warning that this toll could increase to as much as 10% in the coming years for firms unable to effect significant efficiency savings – truly an existential crisis for the sector, if ever there was one. 

To help industry professionals rapidly get all the “need to know” information globally, this report takes readers on a short journey through the main compliance challenges wealth managers face in the EU, Switzerland, the UK, the US, Canada, Singapore and Hong Kong. Also in the spotlight is the accelerating digitalisation and “regtech” adoption that have really shifted the sector’s narrative: wealth managers of all types are turning to new technologies to help them thrive and not just survive amid myriad operational challenges.

Putting key markets under the microscope

The first jurisdiction our report examines is the EU, which of course has a very great bearing on all things compliance here in the UK, Brexit notwithstanding. First among the EU’s regulatory hotspots is MiFID II – due to go live at the start of next year. Much of its requirements centre on improving the data regulators have available to combat abuses, thereby imposing far more onerous documentation and reporting requirements on all manner of institutions. As the report details, readiness levels still seem still worryingly low despite the deadline really bearing down on us now. Meanwhile, although Money Laundering Directive IV has only just come into effect, institutions are advised to be looking towards a fifth iteration. As the report details, a third of wealth managers globally already see MLD IV as having a high or very high impact on their operations and systems. 

Switzerland is our next market under the spotlight, which as we know is going through its own compliance overhaul and an innovation makeover too. Swiss firms are bracing themselves for the impact of the proposed Financial Services Act (FinSA) and Financial Institutions Act (FinIA) – which together will form what the authorities are calling “a new financial market architecture”. On the innovation front, FINMA has shown itself to be very open indeed to new technologies, and in several regards is far ahead of its peers in promoting innovation and making the regulatory changes necessary to support fintech growth.

Next, we looked at the UK, a jurisdiction which is arguably very much the leader on innovation and some elements of compliance like suitability. Of particular note is the Senior Managers and Compliance Regime, which formalises an institutional culture of good governance, requiring staff at all levels to observe five “Conduct Rules”. Significantly, our research has found enhanced data management and better use of management information are now integral to UK firms’ growth strategies, with 44% citing this as a top-three priority. 

Turning to the US, we have not only a raft of new rules, but also moves to repeal many existing ones under the Trump administration. 

Watchers of the US industry will know that the DOL’s Fiduciary Rule has been top of the agenda. This has been hailed as a landmark investor protection measure barring misleading statements and unreasonable compensation, and ensuring that advice is in clients’ best interests. In a finding highly relevant to the Fiduciary Rule, WealthBriefing research has found that data inadequacies - such as it not being timely or representing a complete picture - are a key reason that client reporting does not meet expectations in North America.  

Canada may not be discussed as much as other jurisdictions within the industry, but there are very interesting developments for us to observe here too. The biggest change in Canada is undoubtedly its CRM2 programme. Its main objectives are twofold: 1) enforcing greater transparency over the fees levied and performance data provided on investment accounts; and 2) improving investors’ ability to assess their progress towards financial goals. WealthBriefing research has found that in North America around a fifth of wealth managers believe clients are insufficiently informed about their overall wealth picture and progress towards their goals – something which is unsurprising when we consider that only around 40% of firms’ reports address long-term objectives and how clients might attain them.

Finally, we turn to Asia’s two wealth management powerhouses, Singapore and Hong Kong. 

Industry observers will know that Singapore has been very active indeed on the AML front. Its standards are now broadly comparable to jurisdictions which are FATF-compliant and – as the report examines in depth - the city state is now well advanced on a path towards tighter, better-structured AML supervision. 

However, Singapore is also putting huge efforts into supporting innovation. For instance, in 2016 it convened its first International Technology Advisor Panel, bringing together 500 industry professionals, academics and university students to discuss the impact of technologies like Blockchain, wearables, and telematics, as well as new business models. 

Last on our global tour of compliance and innovation trends is Hong Kong. The FATF is due to evaluate Hong Kong’s AML framework in July/August 2018. Ahead of this, the government has put in motion several enhancements to its AML and counter-terrorism financing (CTF) regulations to better meet FATF standards.

While compliance and innovation may seem to be two opposing forces, they are increasingly recognised as ones that can and should be united – and by regulators as much as institutions themselves. As this study underscores, authorities around the world are often showing themselves to be remarkably supportive of technological innovation even as they enhance their regimes.

Keeping abreast of the nuances of compliance and innovation trends around the world is clearly no easy task, but it is hoped that this report provides wealth management professionals across functions with a valuable foundation for a global, truly forward-thinking perspective. 

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