Navigating global regulatory challenges in asset management – a CXO’s playbook

Published on November 12, 2024 by Puneet Prakash and Suresh Chavali

Highly regulated sectors, such as the asset management sector, are constantly trying to manage the dynamic global regulatory environment. This continues to exert pressure on them from regulators, investors, counterparties and other market players to remain compliant. Regulations can affect asset managers in multiple ways, including via the rising cost of compliance, changes in operational procedures and risk management structures, and the focus on sustainable investment decisions.

It is imperative that the leaders of asset management firms understand these regulations in order to minimise risks and ensure investor confidence. This requires the right balance between legal aspects, efficient internal controls and effective compliance. This blog looks at the various ways in which CXOs can tackle these regulatory issues.

Before we delve into effective strategies for navigating these regulations, we provide below an overview of regional and global regulations that asset managers need to comply with.

 

By following these and other regulations and keeping themselves up to date, asset managers would be able to avoid risks, operate efficiently and gain the trust of clients and regulatory bodies globally.

Playbook for asset management CXOs

Amid increasing regulation, CXOs need to have robust compliance programmes in place. The following is a simple action plan, with a focus on some of the major steps.

1. Develop a robust compliance framework

• Establish compliance divisions that would be in charge of compliance across the world and work with offices in other regions to meet both international and regional compliance standards

• Standardise procedures to ensure consistency and ease of adaption at the local level

2. Maintain a global yet local approach

• Global standards with local adaptation: While keeping policies on par with international standards, ensure that the policies are not rigid to the extent that they cannot be adapted to meet the requirements of local jurisdictions

• Leverage local legal and compliance experts with expertise in regional regulations. This ensures that the firm is well versed in local requirements

3. Invest in regulatory technology (regtech)

• Integrating regtech is essential for asset managers navigating complex regulations. Automation of reporting and compliance monitoring not only enhances efficiency but also reduces the risk of human error

• Clients adopting regtech for investment compliance and marketing material reviews have reported positive outcomes, but there is still much ground to cover in terms of fully utilising these solutions. As regulations evolve, leveraging regtech would be crucial for firms to adapt swiftly and maintain robust compliance frameworks, ensuring their competitiveness in a highly regulated sector

4. Engage with regulators to gain insights on upcoming regulatory changes and future trends

• Maintain open and regular communication with regulatory bodies across relevant jurisdictions

• Participate in industry associations and groups that interact with regulators to get early warnings about upcoming regulatory changes

5. Build and maintain a culture of compliance

• Ensure that firm-wide compliance is a continuous process where the need for compliance is repeated frequently across the firm

• Implement continued training programmes for employees at all levels to ensure they are up to date with the latest regulatory requirements and compliance practices

6. Assess impact and prioritise

• Assess the effects of regulations on operations and focus on projects that help achieve objectives

• Conduct regular scenario planning exercises and compliance simulations to prepare teams for potential regulatory challenges and audits

7. Deploy flexible and scalable governance structures

• Deploy a governance framework able to quickly adopt policies and procedures as regulations evolve

• Establish a cross-functional team of legal, compliance, risk management and operations personnel that can provide a holistic view of regulatory impacts

8. Include regulatory risk as part of enterprise risk management

• Implement integrated risk management systems that consider regulatory risk as part of the broader enterprise risk management framework; this would help in better identification, assessment and mitigation of regulatory risk

9. Implement a proactive regulatory radar

• Ensure that the systems in place monitor regulatory changes across the world and adapt as soon as possible

10. Build a data-driven compliance programme

• Use data analytics to identify patterns, trends and anomalies in compliance data, helping to spot potential regulatory issues before they become critical

• Regularly conduct stress tests and scenario analyses to assess the firm’s resilience to regulatory changes and identify areas of vulnerability

Conclusion

To CXOs in asset management, compliance is not just a checklist item to tick, but a vital business imperative. With this mindset, firms would not only be compliant but also succeed in the long term; this would be enabled by being aware of the global regulatory context, following a strict compliance plan and targeting the right regulatory changes.

How Acuity Knowledge Partners can help

We are a trusted partner to asset managers globally, offering a unique blend of people and technology to streamline compliance functions and mitigate regulatory risks. Our approach integrates deep domain expertise with advanced regtech solutions, providing asset managers with managed services and technology-driven tools to navigate complex regulatory environments.

Our Data Technology Solutions (DTS) team works closely with compliance professionals who deeply understand client needs to build tailored regtech solutions. This collaboration ensures that our tools are designed to address the specific compliance challenges faced by asset managers.

We have developed two flagship tools: GCM (Guideline Compliance Manager) and BEAT AdInspect. GCM automates the investment guideline coding process, and BEAT AdInspect streamlines the process of compliance review of marketing materials. Together they offer seamless compliance management and help asset managers stay ahead of global regulatory demands.

By leveraging our managed services model and cutting-edge technology, asset managers can efficiently meet regulatory requirements while focusing on their core business.

Sources:

• http://www.fca.org.uk/

• http://www.bankofengland.co.uk/

• https://www.esma.europa.eu/

• https://www.fatf-gafi.org/

• https://www.apra.gov.au/

• https://asic.gov.au/

• https://www.cbirc.gov.cn/

• http://www.csrc.gov.cn/

• http://www.hkma.gov.hk/

• http://www.sfc.hk/

• http://www.mas.gov.sg/

• https://www.iiroc.ca/

• http://www.mfda.ca/

• https://www.osc.gov.on.ca/

• http://www.occ.gov/

• http://www.sec.gov/

• http://www.treasury.gov/

• http://www.cftc.gov/

• https://www.consumerfinance.gov/

• https://www.fdic.gov/

• https://www.fincen.gov/

• https://www.finra.org/

• https://home.treasury.gov/

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