How to approach regulatory change management

Why investment managers should turn regulatory compliance into a competitive advantage.

This is a very busy year for European investment managers in terms of implementation of new regulations such as MiFID II and the update of existing regulations like Trade Repository Reporting under EMIR.

I had the opportunity to join a panel discussion at our recent International User Community Meeting covering the more strategic angle of “Regulatory Change Management”. The session attracted a lot of attention, and I had the pleasure of being joined on stage by Nicole Grootveld, COO at MN Services, Erwin Jager, Manager Functioneel Beheer & Datamanagement at Achmea Investment Management, and Umar Zaman, Director Wealth and Asset Management at EY.

It was collective understanding from the beginning that firms have to take an active approach towards regulations in order not to be caught off guard. ‘Readiness’ was a key word here, as it could ensure that firms could react appropriately to regulations.

Nicole, Erwin and Umar discuss their approaches to regulatory change management

MN’s COO explained that her company has a cross-organizational team overseeing the monitoring of regulations that are going to impact the firm within the next 18 months. Umar Zaman from EY underlined that this kind of approach has been proven to be a good practice, but when looking across the entire market there remain a lot of investment managers neglecting this area.

All panelists pointed out that the industry currently has to deal with a huge amount of different regulations impacting different steps of the investment management value chain. Keeping all of those in sync is a big task which requires proper coordination across the organization. Additional complexity is being added by the high level of uncertainty that is for example present in MiFID II.

Erwin Jager from Achmea pointed out that every firm seems to take a slightly different interpretation, but that doesn’t change the implementation timeline. Adding to this, Nicole explained MN’s decision to act more tactically on the MiFID II requirements to avoid building gold-plated solutions for potentially changing requirements. From an industry perspective she added that she experiences far more collaboration between peers in the asset management industry compared to pre-EMIR times. But she continued that industry organizations could support the alignment in an even better way. My own input on this discussion was that ideally, software vendors are brought into the loop at an early stage to understand the impact of a certain regulation on IT.

Finally the discussion touched upon the question of how companies can ensure that their workforce is aware of the relevant regulations and how they impact their daily business. The two key points are

  1. Technical solutions for regulations need to be more agile during implementation as well as operations
  2. Companies need to create learning organizations to enable and incentivize their employees to stay current with their knowledge regarding regulations.

All in all there was a mutual understanding that regulations cannot be handled as singular events, but that companies should implement a regulatory change management process to be successful in the long run. This holds for investment managers as well as for solution providers in this space.

Gaining competitive advantage

The growing amount of regulations constitutes an ongoing challenge for investment managers. Not only is basic compliance a must, but also taking more of a strategic approach in order to turn regulation into a competitive advantage.

As my panelists stated, investment managers need to ensure that they continuously monitor the market for changes to regulations that are impacting their business, and as regulations often require them to liaise with other players in the market like trading platforms or trade repositories, the monitoring needs to include these players.

To establish this monitoring, and ensure that the needed impact of regulatory changes on the IT infrastructure gets analyzed and defined, it’s advisable to have a dedicated team to focus on the long-term regulatory compliance. To truly master today’s environment of regulatory change, investment managers should adopt – and get the most out of – new requirements instead of making compliance an endless series of individual heroic project efforts.  When continuous process improvement around regulatory compliance becomes a core part of a company’s DNA, it ultimately becomes a competitive advantage.