Welcome to the fifth annual Clear Path Analysis report focusing on fund outsourcing and administrator operations in Europe. This report is where European asset management groups, custodian banks and administration communities come together to discuss the challenges and opportunities presented by:
• Outsourcing
• An ever changing regulatory environment
• Evolving strategies for fund managers and their third party administration partners
The last five years have seen significant change across the regulatory landscape of the European funds business. This has placed huge demands on asset managers and their outsourced partners to meet all of the new process, reporting and transparency requirements introduced. From UCITS (“Undertakings for Collective Investments in Transferable Securities”), to AIFMD (“Alternative Investment Fund Managers Directive”) and MiFID (“Markets in Financial Investments Directive”) II, there are too many acronyms! But maybe, and thankfully, the tsunami of regulation is starting to retreat and more attention and focus can now be given to the topic of operational excellence and, ultimately, delivering improved results for investors.
We’ve seen this sentiment starting to bubble up across European fund centres. It’s also reflected in this year’s 2015 report in the sense that only one section is now dedicated to the topic of regulation with the other two focused on strategies for operational improvement. The title of the report has also moved from being solely about Fund Outsourcing to also including Administrator Operations this year.
The change in sentiment is welcome because we all know that as tsunamis retreat, a certain degree of rebuilding is required. Take fund operations where the proverbial sticking plaster has been applied to operational processes to enable them to meet the regulatory demands – introduced in short timeframes. Processes that are now not as efficient as they ought to be and with higher risk profiles than the industry is prepared to tolerate.
Although not strictly regulation, the last five years have also seen regulators across Europe issuing more guidance to asset managers relating to their outsourced partner relationships. In addition, advice has also been provided around the fiduciary responsibility to have in place appropriate levels of oversight of outsourced agreements, as well as suitable continuity planning. The FCA (“Financial Conduct Authority”) led the way with the Dear CEO letter and subsequent thematic review around outsourced operations in 2013/14, and the Commission de Surveillance du Secteur Financier (“CSSF”) has also issued some circulars in this area. But they’re not the only ones. The Bank of Ireland recently issued further guidance on fund manager board responsibilities. The Federal Financial Supervisory Authority (“BaFIN”), the Swiss Financial Market Supervisory Authority (“FINMA”) and other European regulators have also commented on the topic. This has led to the asset management community taking a closer look at their own operational activities in relation to third party oversight and partner relationship management.
A renewed attention and focus on operational excellence is therefore welcome for the third party administration community. The previous sticking plaster approach was not strategic enough for the asset managers they serve. It also presents an opportunity for both parties to work more closely together to ensure that the end-to-end processes within the industry are considered holistically from supplier to ultimate consumer; which is not the asset manager but the end investor. In this way, optimal outcomes can be achieved and hand-offs over corporate and other boundaries can be improved. The Net Asset Value (“NAV”) production process is one area we see this type of partnership approach already being applied, as administrators are now starting to actively work with their clients to ensure that appropriate data is provided to the asset manager quickly to support their relevant oversight requirements.
Over and above the subject of regulation, the topics in this report reinforce the themes of pursuing operational excellence and quality of partnership. Consideration is given to outsourcing models and how to determine which functions should be in-house. Panels also discuss the levels of off-shoring and chain outsourcing now taking place within the third party administration businesses, and how best to organise and structure this. There is also a discussion on how to manage and oversee outsourced relationships effectively.
We hope you find this report of particular interest and that topics on the pursuit of operational excellence and partnership are relevant to you and your business.