Regulation and service excellence don’t have to be opposites

By Mark Shields

The financial services sector is one of the most highly regulated in the world. Wealth managers, insurers, advisors and banking businesses must pay attention and adhere to a staggering number of rules and red tape while ensuring they continue to attract new customers and grow their businesses.

Increasing complexity surrounding regulations has been an ongoing trend in the last few years. This complexity is bringing major changes in several areas, including environmental, social and governance investing; transparency, data security and cryptocurrency. The geographically fragmented regulatory landscape that is in constant evolution doesn’t help. With significant regulatory upheaval expected to take place in Japan, Canada, Benelux, Australia, the U.S. and France, wealth managers’ operating scenario is becoming incredibly complex.

Changes already have taken place in the European Union, where the Sustainable Finance Disclosure Regulation has been in effect since March 2021. The regulation sets new standards on disclosures and introduces the requirement to report investments’ adverse impact on social and environmental issues.

When it comes to the U.S., similarly, the Security and Exchange Commission has taken on the “mission of protecting investors, maintaining fair, orderly and efficient markets and facilitating capital formation,” as stated by SEC Chairman Gary Gensler in the SEC’s 2021 Unified Agenda of Regulatory and Deregulatory Actions. As a result, the SEC is currently exploring the introduction of climate risk disclosure and ESG-related claims. These will require collection and management of large amounts of data.

According to ThoughtLab’s recent research, Wealth and asset management 4.0- How digital, social, and regulatory shifts will transform the industry, wealth management professionals expect the top area for regulatory change in the next two years to revolve around: data privacy (55%), followed by cybersecurity (50%) and other fintech-related regulation (36%). All these areas critically impact data collection by the advisor as well as management of that data in the back office, making them particularly sensitive to the risk posed by human error.

In addition to this new and constantly changing regulatory landscape, investors and wealth managers, especially in the U.S., must face the possibility of new tax increases which will exacerbate an already challenging outlook. This is particularly relevant regarding changes related to data collection and management, as few wealth management businesses will find themselves exempt from introducing changes to the way they collect and process customer information.

Data management should not be underestimated, especially if required to meet compliance, as explained by David Gurtner, senior manager and member, management board, Investec Bank Switzerland, in recent ThoughtLab report: “We see a huge challenge in data management from regulatory requirements. For example, the implementation of MiFID in the European Union has led to a drastic increase in the need for data retention. Not only do we need to gather more data on our own products, but we also must process and manage data from other products. For example, we now have to declare the fees charged by a third-party fund manager.”

Weaving regulatory compliance seamlessly into the high-end service of private wealth management requires a delicate touch — and this is not always easy. Advisors are required to ask customers to fill out extensive documentation to build their profiles and ensure transparency. This exercise can be tiresome and complex for investors, who will be even more put out if they must repeat the process due to a minor omission or mistake.

Yet when processes are carried out manually, the risk of human error, from an illegible file to an accidental omission, is very real. Opting for greater automation and compliance by design will become a pressing need for wealth management firms. Add to this the fact that clients often must input the same data, such as an address, repeatedly at every compulsory regulated review, and it is clear that data collection and verification pose a threat to customer experience.

Wealth managers who want and need to remain competitive can no longer rely on manual and legacy processes, email or Slack. To guarantee a precise and secure data collection process and a high level of hassle-free compliance, wealth managers should consider the implementation of new flexible solutions that will allow them to digitalize and automate lengthy processes, such as client onboarding, and to deal with future regulation changes swiftly and efficiently, without impacting client engagement.

It is therefore essential to opt for digital solutions that can be tailored to respond to the geographical regulatory needs, to the seamless experience demanded by investors, and to evolving transparency and auditing processes. Reducing frustration and the risk of errors, while also ensuring the required standards are met without fail, is a win-win for both investors and wealth managers, freeing up advisors from taxing administrative processes while improving customer experience.

Mark Shields is director of solution marketing at Appway, an FNZ company. He may be contacted at [email protected].