Reducing Operational, Compliance Risks In Asset Servicing Through Digitalisation

Simon Wong ERI 15 December 2021

Reducing Operational, Compliance Risks In Asset Servicing Through Digitalisation

How can the rising business of asset servicing in Asia deal with the challenges as well as the opportunities of growth? This article examines some of the main points.

This article is by ERI, written by Simon Wong.

The asset servicing industry in Asia has been enjoying phenomenal growth for the past several years, and all the data suggests that this growth will continue. According to the Securities and Futures Commission’s (SFC) Asset and Wealth Management Activities Survey, the asset management industry has enjoyed an AUM increase of 20 per cent year-on-year (1).

PricewaterhouseCoopers projects that by 2025, Asia-Pacific region assets under management will outpace all other regions globally and almost double from $15.1 trillion in 2017 to $29.6 trillion (2). 

This is despite the world facing the unprecedented challenges of COVID restrictions, lockdowns and increased geopolitical tensions. But while asset managers celebrate, asset servicing firms such as fund administrators and custodians are discovering that this growth has created new challenges. These are putting them and their clients at increased risk, particularly around regulatory reporting, compliance monitoring, asset valuation and corporate action processing. 

With added complexity come added risks, and asset servicing firms such as fund administrators and custodians must recognise these risks and take a strategic holistic approach in tackling them. Moreover, they must do so without disrupting their profitability or their operational capability. As a leading technology provider for asset and wealth management, ERI asked many of its asset servicing clients what they see as areas of challenge in their business. 

A careful analysis of the responses led us to a simple realisation - these challenges are just symptoms of a single underlying problem that can be summed up in a single descriptive statement: the fragmentation of data due to disjointed operational processes. Combine that with heavy reliance on manual, paper-based processes and tools, and the accuracy and consistency of the data used across various operational divisions will undoubtedly suffer. 

Operational staff are constantly spending hours digging for data from numerous sources, and then verifying its accuracy and timeliness. Such mundane tasks make up the bulk of the operational overheads. To solve this problem, asset servicing firms must shift their focus to streamlining how the data travels across the divisional chains to external stakeholders of the ecosystem. They must also focus on how they can maintain its accuracy and consistency, not only throughout the internal process cycle but when communicating to external stakeholders, such as partners and other service providers who are part of the ecosystem. 

This requires shifting the traditional operating model to a digital one to make it less reliant on manual processes and paper-based tools in order to achieve true process integration in a timely manner by facilitating process integration, creating a single source of truth, and enabling real-time updates of transactional data. 

Having the proper technology infrastructure is key to success in such an exercise. To achieve true process integration where data can remain consistent in real time, the ideal solution would be to have a single unified system that is fully integrated across all operations/functions in order to achieve true data STP and provide complete end-to-end functional support for asset servicing. 

1, Asset and Wealth Management Activities Survey 2020, Securities and Futures Commission 
2, Asset & Wealth Management 2025, PWC Asia 

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