A conference organised by this news service on issues connected with compliance, regulation and digital development found that technology can solve some challenges - but also add new ones.

Compliance with regulation in a digital age is in some ways easier as new technologies remove manual chores, but new ways of commerce also cause new headaches, a recent summit, organised by this news service, has heard.

And with Brexit dominating much debate it is easy to forget that many changes affecting wealth management in Europe continue regardless of the specific way in which the UK leaves the European Union, delegates were told at the event, held towards the end of 2016 in London. (For further details, see this link here.)

The summit consisted of four panels. The first was entitled “Compliance challenges for wealth management. Impact and implications of the Senior Managers Regime”; the second was called “Digitising the whole client lifecycle”; the third was named “Technology and impact: where to spend?”, and the fourth panel went under the banner of “The industry speaks: Q&A. To what extent will technology be a driver for the successful wealth manager for the future?”

Sponsors of the event were ERI Bancaire; ComplySci; Expersoft; HR Comply; Hume Brophy; KlarityRisk; Nodes; ProFundCom and smartKYC.

The first panel, as the title suggests, focused on the Senior Managers Regime, a set of rules designed to make individual senior bankers more accountable for what their firms do. There was also discussion of the European Union’s The Markets in Financial Instruments Directive.

The SMR came into effect in March 2016. It started with banks and its provisions are also covering the wealth management sector more broadly.

On the panel were Bjorn Blanchard, consultant at HRComply; Ian Cornwall, director of regulation at the Wealth Management Association; Simon Elvidge, managing director at 3 Lines of Defence Consulting; Victor Van Hoorn, account director for Hume Brophy, and Rosalyn Breedy, partner at Wedlake Bell.

The SMR may seem like a “long way down the line but it is not [for the wealth management industry],” Elvidge told delegates who gathered at the ETC centre in the City district of London. Some of the regime relates to putting individual responsibilities in firms on a formal setting. He discussed the notion of how organisations must think in terms of a “responsibility map”. One challenge for firms in setting out compliance with SMR is establishing which managers want to take on which responsibilities – this can take time, and firms have less time than they might think. The internal politics, especially in firms with an international matrix management structure, will eat up the time.

One pinch point is that with SMR, it is not always clear if understanding such a regime is primarily about regulation or employment law, WMA’s Cornwall said. “People need to be sure that regulations and employment laws don’t clash,” he said. Wedlake Bell’s Breedy asked what the implications for family-owned firms will be, a sector in which she is closely involved. Another issue, Blanchard said, is how the SMR would affect businesses with presences outside the UK, such as Switzerland. WMA’s Cornwall said the timing of SMR’s rollout for the wealth industry is important, given the need for preparation. He said his association is lobbying to ensure the regime does not apply until the start of 2019. 

Turning to MiFID, panellists noted how, to varying degrees, the EU’s directive runs parallel with, but is also in some ways at odds with, the UK’s own Retail Distribution Review (2013). And the UK's departure from the EU will not likely reduce the chance of MiFID’s impacting the UK financial industry, the audience heard. “Despite Brexit, it’s happening,” Van Hoorn said. Cornwall pointed out that many of the strongest ideas in some EU directives originated from the UK. The wealth industry has had to contend with considerable compliance burdens, not least in terms of IT costs, he continued. Asked if he thought the volume of compliance work had peaked, Cornwall replied: “We are at the tail end of the [financial] crisis…in terms of initiatives in the pipeline.”

Van Hoorn said the EU “now understands that the focus on investor protection needs to be back on the agenda”. 

Asked what panellists thought might be the next big agenda item for EU policymakers, Van Hoorn replied: “I know that for the EU financial advice is going to be the next big initiative...In Europe, the advice market doesn’t really work. You will see a lot of consultation and a lot of policy statements.”

Panel two
The panellists were Hermann Schwalm, independent business consultant; Pablo Diaz de Sandi, global client lifecycle management programme manager at HSBC Private Bank; Dominic Greenwood, chief operating officer, Expersoft Systems; and Verona Smith, head of platform, Seven Investment Management. 

Schwalm made the point that in terms of digital financial offerings, “the younger generation expect it”. The transfer of wealth to younger generations, now in progress, will accelerate this process more generally, he said.

It is vital for wealth managers to have strong data management in place, particularly so they can get on top of issues such as client suitability, Greenwood said. "Technology shouldn't ever get in the way but help humans do their job better,” he said. 

Technology is “indispensable” in helping firms deal with the sheer complexity of today’s investment world, particularly given regulatory requirements, Diaz de Sandi said. 

In a different vein, Smith talked about apps – such as those developed by her firm – that give clients the ability to have an interactive view of their investments and their wealth management “journey”, so they can see if they are on track to meet their goals or need to make corrections and revise assumptions. 

One issue is that of application programme interfaces – these set out how software components should interact and have been an area of widespread activity in wealth management financial technology recently. There are about 1,000 APIs available for financial services today, said Greenwood. This, however, also raises questions about the control of data and information privacy. There are concerns, he said, about the sharing of information. 

Diaz de Sandi, on this confidentiality of data point, said: “We have to realise it is not private banking any more. We have to share information with governments and all of these institutions."

When it comes to asking questions of clients, Greenwood said: “We need fewer questions and [to] get those questions right.”

Panellists agreed that when discussing key performance indicators around digital wealth management, the best measure is the view of clients; one potential metric to track is the drop-off rate of clients and client retention.

Smith, asked about demographics and technology, said the embrace of digital wealth management was not greatly driven by the age of a client; it is too easy to assume that older people are less willing to use technology, she said.

Panel three

Speaking on the third panel were Wendy Spires, head of research, ClearView Financial Media; Jonathan Boakes, managing director, Nodes; Nigel Sirett, sales director, Appway; Theo Paraskevopoulos, founder and chief technology officer, GrowCreate; Ian Woodhouse, director, asset and wealth management consulting, PwC; and Roopalee Dave, senior manager, wealth and asset management at EY.

Kicking off the discussion was Spires, who talked about recent data from Celent about compliance trends, as well as the work ClearView has done to focus on this area. She noted, for example, that a significant lump of firms are devoting more IT to client outcomes, such as investment suitability, rather than simple compliance with regulations. Another survey, from EY, she said, highlighted more spending on commercial development, and less in proportionate terms on regulatory compliance.

Boakes said managers are taking decisions with a desire to “maximise what you have” and get the most from existing systems. Even so, he said, on the creative side, technology continues to improve and “is only going to get better”, which is exactly what the millennial generation wishes for, he said.

On tech and compliance, Sirett said: “Compliance is layering upon layering. For many organisations there is nothing strategic in where they are going for the next five years. They simply address each new regulation as it comes along.”

Paraskevopoulos said the goal was not just adding new projects or apps, but ensuring that technologies being introduced could interact smoothly with legacy systems. This, he said, raised the importance of APIs. “An API should be looked at not as an afterthought but as a core of the whole system,” he said.

PwC's Woodhouse predicted that more financial technology firms will be able to ride on the backs of established financial services players, as the latter are seeking to increase and deepen their partnerships with fintech and regtech providers to accelerate their development of next generation digital propositions. This provides newer firms with the benefit of their established brands and sizeable client bases. 

He also said the UK asset and wealth management fintech sector is beginning to feel some pressure from Brexit uncertainties, with competing locations such as Switzerland and Singapore actively looking to attract talent and investment to win a greater share of this rapidly evolving pie.

On budget, Sirett reminded the audience that, with technology, there remains one underlying message: “You have got to keep the lights on.”

EY’s Dave said operational efficiency is an area that wealth management firms are devoting time and resources to. “We are seeing more about compliant innovation.”

The rapid growth of family offices in Europe is an important trend from a technology point of view, she said. And on a broad point, she noted that there remains a “big opportunity” in the UK because at least half of the wealth held by HNW individuals is not yet managed by wealth management firms.

Panel four

On the fourth panel were Curt Hopkins, chief operating officer, Novastone; Kitty Parry, founder and CEO, Social Media Compliance; Eric Moe, partner, chief operating officer, Whitefoord; and David Newman, co-founder, chief operating officer, Delio. 

Discussion focused on how online communication, such as use or potential misuse, of social media should be addressed. Hopkins, for example, spoke of how clients in Asia want to use “chat” functions when talking to wealth managers. The issue for banks is “how they can talk to clients using the latest forms of technology and in a secure way where they can control use of the data,” he said.

Parry said there must be acceptance that the wealth management sector is some way behind other industries in use and understanding of what social media can achieve. A pinch point is the use of social media for spreading ideas about wealth management on the one hand, and compliance with rules on the other, she said. “Regulators acknowledge that social media have no respect for national boundaries,” she said. In some cases, technologies such as “Snapchat”, where records of conversations disappear, would flout regulators’ data retention requirements from firms.

Moe said one problem is that a default setting for many firms is simply to adopt a zero-tolerance policy on online communication. “They generally don’t understand it,” he said. 

Hughes said that in thinking of web-based wealth management services, it is important for people to take a conversational approach in using digital platforms, such as the “chat” and messaging functions now available. Newman, meanwhile, noted that many people, while they are happy to see certain aspects of wealth management automated, still often prefer the actual advice to involve human interaction and contact.

Moe said the development of blockchain - a distributed ledger system associated with the digital currency bitcoin - held promise because of its ability to reconcile transactions and keep track of information.