Compliance in the asset management industry

The world of asset management is expansive. The global asset management market was valued at $12.4 billion in 2021 and is expected to reach $58.66 billion by 2028. Asset management is pivotal in financial services, providing individuals and firms with the tools required to manage their assets effectively and achieve financial goals.

What is asset management?

Asset management is the process of acquiring, maintaining, and trading financial assets such as stocks, bonds, and shares, with the goal of increasing wealth over time. Financial assets refer to money, stocks, bonds, or shares. The practice involves managing funds on behalf of individuals and firms, and using investment strategies to maximize returns whilst minimizing risks.

An example would be an asset management professional working for a financial institution, helping their clients make informed decisions that align with their financial goals.

How does asset management work?

The goal is to maximize the value of investments over a period of time whilst managing risk levels. Asset managers tend to work for firms, pension funds, governments, or high net-worth individuals. The process starts with:

1. Understanding a person’s or firm’s financial goals, including long-term investment goals or retirement plans.
2. A personalized investment plan is created.
3. Maintenance of the investment portfolio by analyzing the market, selling funds or buying more assets when needed. This portfolio is managed generally on a daily basis to flag new investment opportunities.

Navigating asset management regulation

Regulatory reporting pressures for asset managers have increased in recent years. From the Markets in Financial Instruments Directive II (MiFID II), the Packaged Retail and Insurance-based Investment Products (PRIIPs) to the Senior Managers and Certification Regime (SMCR), the asset management industry is highly regulated.

Other key global asset management regulations include the Foreign Account Tax Compliance Act (FATCA), a US regulation that requires international firms to report on the assets and income of US taxpayers to the Internal Revenue Service (IRS), aimed at combating tax evasion. The Securities and Exchange Commission (SEC) governs the registration and reporting requirements for asset managers in the US, penalizing those that do not comply.

As with crypto and ESG, there are not current global asset management regulations. These differ for each country, causing a fragmentation in regulatory attitudes. The International Organization of Securities Commission (IOSCO) is a global firm that aims to bring global regulators together to develop best practices for asset management and securities regulations.

FCA seeks to modernize asset management regulation

Following Brexit, the UK Government seeks to give its financial services a facelift with new regulations that allow firms to thrive and innovate.

To establish the UK as a leading, global financial center, the Government has touched on the Edinburgh Reforms, a revised Financial Services and Markets Bill and has even published a blueprint for successful crypto regulation – which is in line with the latest trends. Adding to this list, the Financial Conduct Authority (FCA) has asked for thoughts on what regulatory changes would assist the asset management industry to follow suit and innovate, support investors and increase competition.

With over £11 trillion of assets managed by firms, the UK is a “leading center for asset management.” The

Future Regulatory Framework aims to navigate the future of the UK financial services sector outside of the EU. As part of this, the FCA has the opportunity to modernize asset management regulations that better meet the requirements of markets and consumers. The FCA’s suggestions will align with international standards and embrace technological advancement and innovation, as well as simplify requirements.

Camille Blackburn, Director of Wholesale Buy-Side, commented:

“The UK has an opportunity to update and improve the UK regime for asset management. We want to hear from a wide range of voices about how we can enhance the existing standards and what we should prioritize to bring the most benefits to consumers, firms and the wider global economy.

Given the UK’s leading role as a center for asset management, we want to make sure our rules are fit for the future. We want a UK wholesale market which supports the economy and is open to innovation, while remaining consistent with high standards of consumer protection and market integrity.”

CUBE comment

Numerous recent events have added to investor uncertainty, including Russia’s war against Ukraine, the aftermath of Covid-19, inflation, and rising interest rates. To add to asset manager woes, there are multiple reporting deadlines at once, especially for those operating across borders.

To stay ahead of emerging asset management regulatory changes, incorporate Automated Regulatory Intelligence to automate the entire end-to-end compliance process. CUBE’s solution provides asset managers with a complete regulatory inventory to ease the regulatory burden and frees up valuable time so asset managers can focus on providing better value to clients long term.

Rather than focusing on keeping afloat in the sheer velocity of regulatory change, asset managers can now focus on implementing change and strategy. CUBE is here to help asset managers to get to confident compliance.

Contact CUBE to reach confident compliance.