Asset Management-Fintech: Data?

PwC press release and the comment within it “PwC’s forthcoming Global Fintech survey polled 545 leading asset managers – only 9% of asset managers are very familiar and just under 3 in 10 are not at all familiar with blockchain,” caught my eye.

Are we going to witness asset management and Fintech marriage or a face-off? Or maybe it is too early to call. There are a fair number of pot holes that the fund management industry grapples with and perhaps Fintech and Blockchain can bring about change in the mechanics. Regulation, governance (regulator, investor, shareholder), regulatory-compliance reporting, technology and operations are all part of an asset managers infrastructure. A reasonably chunky expense line and add to that ever-changing regulatory-compliance requirements.

I am not surprised by the PwC findings – simply because the industry in unison has focused on keeping up with the regulator and investor demands. Innovation is not at the forefront and even if it was, it could turn out to be a tedious and an expensive affair. That is not to say that Fintech cannot have an impact.

One of the ways for Fintech to have an impact would be to look at the industry from reg-op-tech (regulation-operations-technology) perspective. Majority asset managers outsource their back-middle office, trading, asset servicing to multiple securities service providers. Regulatory formulae have limited technology exposure and operations have to ensure asset allocation, reacting to market events on managed securities, recording trades, audited pricing feeds, communicating with the transfer agents and delivering NAVs. All of this is done in-house, outsourced or a combination.

Asset owners and managers could find themselves becoming nodes in distributed ledger – blockchain system. Disruption or in this case assistance can come from technology intervention by automating regulatory feeds. The fund administration core of cutting the NAV has several audit and regulatory asks. Technology in use and process as a whole is so fragmented that depending on the complexity of the fund it could take two to five full-time staff to carry out administration for a single fund.

Automation is gaining momentum. There are Fintech startups that address compliance and regulatory protocols. The internal rule writing compliance engine and regulatory metrics by market consumes major resources and despite that, mistakes happen. Technology is coming to the forefront as an aide. It is not innovation in the ideal sense of the word, but it is more of a constructive-disruption.

The real challenge in this industry is to consistently meet investor-regulatory demands and yet maintain composure and compliance. An outside in view could be delivered via Blockchain solutions. To eke out real efficiencies technology, regulations and operations if mixed in right proportions could create a perfect chemical reaction.

The critical element in this partnership is data. The basics of portfolio management, asset allocation, pricing and reference data. Trade records, management and regulatory reporting are vital elements of the industry. Fintech in the data sense of the word is Bloomberg, Thomson Reuters and Markit. They hold the key to data. As the new regulations (also post Brexit) start to be formed the industry is likely to evolve. Who will play the most critical role? Data providers, Banks, Fintech? Or will it be constructive–disruptors taking the investment management industry towards technology?

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