Rapidly changing regulatory landscape pushing wealth and asset management firms to turn to regtech specialists

The rapidly changing regulatory landscape is pushing wealth and asset management companies to turn to specialist regtech providers, experts said.

In a webinar that took place on August 25, 2020, Ralf Huber, co-founder of Swiss regtech firm Apiax, and Claire Farley, executive director of legal services firm aosphere, addressed the main data protection challenges companies are dealing with today, sharing findings from a survey of the Asian wealth management community.

Farley, who’s responsible for aosphere’s product strategy and heads the group’s three online regulatory subscription services, said that the proliferation of data and data regulations are forcing companies of all sizes to turn to regtech specialists for their regulatory and compliance needs.

“Data protection is changing, but there are also all sorts of other regulatory changes. It’s challenging,” Farley said.

“There’s a huge drive of going towards specialist solution providers: people who live and breathe automating and systemizing these kinds of processes. When you use these kind of providers, you benefit from a syndicated cost model. You don’t have to develop and maintain your own [system]. You can use a provider who is already doing that for a lot of other people as well, and spread the cost in that way.”

Following the implementation of General Data Protection Regulation (GDPR) in the European Union (EU) in May 2018, many jurisdictions around the world moved to review and strengthen existing data privacy and cybersecurity laws.

2018 and 2019 in particular saw continued growth and change in those areas across Asia Pacific (APAC). Notable examples include China’s cybersecurity law, Sri Lanka and Malaysia’s personal data protection laws, and the Philippines’ Code of Ethics and Code of Conduct targeting online lenders.

But keeping up with these rapidly changing rules can be a taunting task, Farley said, especially when you are doing business internationally as regulations around data privacy and protection vary across jurisdictions. It’s especially challenging in Asia where the region’s privacy frameworks are still highly fragmented.

According to the Hubbis/Apiax survey, 64% of wealth and asset management firms in APAC see data transfer as one of their biggest challenges, showing that companies are still struggling to figure out the appropriate protocol and security when moving data.

“For our customers, the main issues are around understanding the rules around data transfer,” Farley commented. “These rules vary around the world.”

“[On data protection], we see three main trends in the legal area: the first is increasing data localization, or rules that say ‘you can’t transfer this data outside of the country.’ The second thing that is making data transfer a more difficult thing to do, is all the changing legal developments, for example the [Shrems II judgment] and other rules aimed at balancing customer data protection. And the third is the rising trend toward individual consent.”

Among the biggest motivators for wealth and asset management companies to go digital, APAC respondents cited efficiency (58%), the urgency for innovation/digitalization (25%) and cost savings (17%), showcasing that region’s wealth managers are viewing digital solutions as a way to improve efficiency and enhance scalability.

The global regtech market is expected to reach USD 16 billion by 2025, growing at a compound annual growth rate (CAGR) of 20.3%, according to a Markets and Markets report. This growth will be mainly driven by the increased cost of compliance, rising need for faster transactions, regulatory sandbox approach to support regtech innovations, and lower entry barriers with software-as-a-service (SaaS)-based offerings, the report says.

Further illustrating the growth of the regtech sector is the rising investment activity. According to KPMG’s Pulse of Fintech H2’19 report, the number of global regtech deals rose to a new high of 145 in 2019, reflecting an increasing interest in the sector as new regulations including GDPR but also the second Payment Services Directive (PSD2) in Europe, as well as the California Consumer Privacy Act (CCPA), are being implemented.

Moving forward, a number of elements will continue to drive interest and investment in regtech, KPMG said, including more focus on consumer protection and data security, the enrichment of the regulatory landscape in different jurisdictions, digital transformation within financial institutions, and the success stories of regtechs as they begin to scale and grow.