Many trends shaping the funds industry are not local but global
The full article was first published in the Winter 2019 edition of ‘Funds Global Asia’
The rise of passive funds, the ever-growing demands of regulatory compliance and the challenge of managing large quantities of data are just three issues asset management companies are facing globally.
Clearstream in partnership with Funds Europe has explored these topics in the series ‘What’s next for funds’ survey based reports and shared the results during a panel debate at recent Asia summits in Hong Kong, Singapore and Shanghai. Funds Global Asia presented the report highlights and discussed its relevance to the Asian marketplace.
Funds which passively track an index have most grown in popularity in recent years. Exchange-traded funds (ETFs), which are typically though not exclusively passive, have gathered a large proportion of this new business. As asset gathering continues in the ETF market, the major players are realising ever greater efficiency gains, allowing them to cut their low fees even further. These lower prices are helping to expand the market. The Asian panellists agreed with this trend but added a caveat relating to the local markets. Unlike in the US, where ETFs are routinely sold to retail investors, Asian fund distributors are not typically in the habit of promoting ETFs to their customers. Instead, the banks that dominate the market for fund distribution in most Asian countries prefer to promote actively managed funds and are incentivised to do so by the structure of commissions and retrocessions. Until the distribution model changes, said the panellists, ETFs are likely to remain principally an institutional product in Asia.
Regulatory compliance is taking up an ever greater amount of effort. Compliance departments have to take a global view because so much regulation is cross-border. The difficulties of onboarding clients in Hong Kong or Singapore are similar to the challenges involved with doing so in Luxembourg or Ireland. Connected to the regulatory burden is the question of how to deal with the growing quantities of data being generated by the funds industry. A large majority agreed with the statement, that fund companies should be careful about how much customer-level data they receive because each piece of data incurs regulatory responsibilities. The panellists in Asia stated there is a trade-off here. On the one hand, fund companies can benefit from knowing more about their customers; on the other hand, the risks of mishandling data increase with every layer of information that is received and stored.
In this context, Neil Wise, Global Head of Sales, Investment Fund Services at Clearstream took the opportunity to explain the rationale behind Clearstream’s the acquisition of the Fund Desk platform and its expansion into the distribution intermediation space supporting both fund distributors and fund providers.
Expanding into the distribution intermediation space
A big driver for this service extension has been client demand as well as MiFID II including its requirement for greater product governance from everyone along the fund processing chain, specifically distributors, as well as the need for more transparency. The new product range will cover: a distribution contract negotiation service, compliance services for eligibility control and AML/KYC/KYD rules, data exchange to bring fund data from the asset managers to the fund distributors and vice versa, and a fee management service to compute, accrue and collect trailer fees. The new range of products in the fund intermediation space will be launched in the course of 2019.