Investment management firms will have to move toward centralised IT systems if they are to address changes in financial regulation, or else face the possibility of no longer being able to service customers.
At a media briefing in Sydney yesterday, SimCorp manager for system solutions in Asia-Pacific, Christian Eriksen, highlighted the fact that the current investment lifecycle — the process that investment managers go through to invest customers' money — could involve around nine different systems and/or databases.
"For every part of the lifecycle, these investment managers, fund managers, or fund administrators will probably have a system that manages each part. In some instances, you will actually have multiple databases and systems," Eriksen said.
Each of these systems has a particular function, such as managing the customer relationship, compliance and performance, and reporting. However, any amendments in regulations would mean that changes would need to be made across many of the disparate systems, increasing the amount of work that IT departments must perform, and introducing new complexities that might arise from each of these systems having to interact with each other.
Furthermore, according to Investit principal Doug Neill, many fund managers are unaware of upcoming regulatory changes. Investit conducted a survey of Australia's investment management firms in October and early November, and found that over one third of the firms it interviewed expect to deal with more than 10 new global financial regulations in the next two years, and an additional 19 percent expect to deal with more than 20.
Additionally, over one third of the firms felt that they had to deal with more regulations than they even knew existed.
Neill believes that about 10 new regulations will come into effect by the middle of next year. When coupled with the number of systems that need to be updated to reflect these changes, he said that the effect and work that investment managers must tackle is effectively multiplied.
"This is going to be largely a data problem. It's going to be about reporting, and it's going to be about giving more information to the regulators. When we ask the investment managers how they want to deal with this, they said, 'Ideally, we would have rules-based systems that we can configure. We're not really interested in having the kind of Y2K, let's-upgrade-all-our-systems [scenario] again,'" Eriksen said.
"If they're going to lift the hood on all of their systems potentially, now is the time to say this is the time that we're going to upgrade our systems," Neill said.
Eriksen advocates for a centralised IT system, where all of the functions of the investment lifecycle feed back into a single system that can easily make broad changes in response to regulatory changes, without the need to individually look at each system. Although organisations will be faced with uncertainty over the next few months as regulations come into effect, Eriksen and Neill said that the CIO should not fall into the trap of examining each system one by one and setting up separate IT projects for each.
"This is the time to step back and look at this and say, 'What is the impact across all of these systems in this area?' That might be the impetus for the CIO to say, 'Actually, it's now the tipping point where we need to buy a new system,'" Neill said.
"The CIO needs to provide that input, so that the C-level can make that business-based decision: 'Actually, being Europe might just be too hard. It doesn't bring in enough revenue. Maybe it's the time to pull out.'"