By Senior Consultant, Justin Hannaford.
Whether positive or negative, Compliance plays a crucial role in shaping an Asset Manager’s bottom line. It sits alongside other regular Asset Management core tasks like Portfolio Management, Asset Allocation, Research and Analysis or Performance. Professionals in Financial Markets need to understand and adhere to a broad and comprehensive suite of industry standards and regulations - designed to uphold the integrity of financial markets and, ultimately, protect investors. This makes Compliance an integral part of the overall Asset Management landscape. The following points list some of the factors that can influence the bottom line:
Business Opportunities: The ability to demonstrate a robust Compliance culture can enhance an Asset Manager’s reputation and help entice and acquire new business prospects. Conversely, failures within the Compliance framework can have a wide-ranging, detrimental impact on an Asset Manager's reputation and potential loss of AUM. Aside from evidence of a strong performance record, many institutional investors and high-net-worth individuals rightly place strong emphasis on Compliance adherence and its perceived associated lower risks. Attracting new clients is an organic way an Asset Manager can increase AUM and, therefore, profits.
Operational Considerations: Functional and reliable Compliance processes and resources enhance operational efficiency through automation and streamlining of procedures. Examples how technology can promote more efficient and cohesive ways of working include: the automating of regulatory reporting and monitoring, well organised documentation, knowledgeable in-house Compliance SMEs and standardisation/transparency of processes/systems. Although the above implementations may initially be seen as costly, over time they can help reduce costs over time and nurture a better overall client experience. This contributes to a stronger bottom line.
Market Access: The capacity to demonstrate strict Compliance protocols is often a prerequisite for accessing certain markets or new investor segments. This market reach and ability to tap into potential new revenue streams is facilitated by the Asset Manager being able to meet both local and foreign regulatory requirements.
Fines and Penalties: A lack of sufficient, robust and necessary regulatory governance can result in fines, penalties and, in extreme cases, litigation. Any resulting negative financial cost could adversely impact an Asset Manager’s profit.
Evolving Regulations: Regulatory requirements are constantly evolving. They require an Asset Manager to proactively anticipate and adapt accordingly. Rather than reacting to last-minute requirements, this foresight and flexibility can help mitigate costly last-minute changes to their operations.
In conclusion, any initial costs in setting up a robust Compliance framework should be offset against what will be delivered to the organisation in future. As argued above, reliable and strategic Compliance adherence can increase customer confidence, enhance business reputation and greatly improve operational efficiency. These outcomes – though intangible - are as valuable as any actual initial costs because they impact an Asset Manager’s long-term profitability and sustainability.
At Liqueo, we advise on - and implement - scalable, robust Compliance processes. We deliver an exceptional, bespoke service via a dynamic, agile framework. If you are interested in how we can help you implement or improve your Compliance workspace, contact us for more information.
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