The future of automation for UK asset managers

The last 18 months have been amongst the most disruptive that the financial services industry has ever experienced, forcing many sectors to reconsider business models.

Asset managers in particular have undergone a substantial transition as video conferencing has replaced client-facing interactions. To better understand how these firms have responded to market disruption, we surveyed 100 Heads of Operations across UK asset management firms to learn about their operational challenges, automation objectives and plans for regulatory compliance in 2022.

From this study, three lessons stood out for their relevance to the wider fintech industry:

1. Operational challenges and tech improvements are company-specific

We asked asset managers what does and doesn’t present a challenge to their daily operational processes.

While the availability of automated systems and adequately skilled staff were highlighted by two-thirds of respondents as the most significant challenge, firms also pointed to many others including the functionality of manual resources, process complexity and a changing regulatory burden.

Although nearly 8 in 10 acknowledge that the capabilities of current systems are hindering operational growth, firms have identified a range of priorities to improve these systems from seamless data flow, AI-assisted dashboards and dynamic data management through to enhanced risk management and talent acquisition.

The variety of responses tells us that no two firms face the same operational challenges and, consequently, that technology infrastructure improvements for 2022 will be equally varied in their application to the asset management industry.

2. Manual reconciliations continue to challenge asset managers

Reconciliation is an essential process for keeping accounts and financial records accurate. In recent years, more firms have been automating reconciliation procedures to eliminate risk of error and improve accuracy.

Despite this, our survey reveals that:

• 60% of asset managers worry that manual reconciliations are the greatest risk to their organisation
• 75% say that the number and volume of manual processes is an immediate operational challenge
• Only 7% say that manual processes present no challenge to their firm

Data preparation was also highlighted amongst the most time-consuming tasks for businesses, which further highlights how the complexity of data management continues to grow year on year. This is consistent with our work across other sectors, where we find that manual processing is really the core issue underlying poor reconciliation disciplines.

With half of UK asset management firms allocating budgets between £0.5 and £10m to address manual inefficiencies, we can expect automation to become more deeply embedded in the industry throughout this year.

3. Regulation is accelerating the trend towards automation

Although manual processing has been steadily declining for years in favour of automation, our findings show that a growing regulatory burden is definitely a factor in this transition.

Just 2% of asset management firms in the UK have no plans to invest in automation to achieve regulatory compliance. For the majority that did, top focus areas include operational resilience, prudential regulation, MiFID II and CASS. A further 7 in 10 felt that automation will be instrumental in achieving compliance with the IFPR regulation, which came into effect on 1^st Jan 2022.

These findings tell us that UK firms are actively pursuing automation as a convenient and cost-effective way to fortify against regulatory breaches. Nevertheless, with 42% still pointing to new or changing requirements as the biggest threat to their company, such solutions need to be flexible as requirements continue to grow in scope and complexity.

What does this mean for software providers?

The results of our survey clearly demonstrate that automation in finance will become ubiquitous in the medium to long-term. However, the variety of responses and priorities outlined also shows that firms do not want an off-the-shelf solution; instead, they want a reconciliation platform which:

• Is configurable to specific operational needs
• Eliminates manual intervention through end-to-end automation
• Is purpose-built around specific regulatory requirements
• Is flexible to accommodate for multiple iterations of regulations

Of course, these are welcome findings at AutoRek, where we have spent over two decades working with financial firms to build bespoke solutions for unique reconciliation, operational and regulatory requirements.

In the short-term, it is clear that asset managers recognise how automated reconciliation disciplines do and will continue to form the cornerstone of an effective business model in today’s post-pandemic environment. It will be interesting to see how this plays out across the wider financial industry over the next 12 months.

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