The fund industry needs a technology upgrade, but the complexity and risk of failure can deter decisive action. Smaller fund firms need a realistic plan and assessment of their needs before the first steps are taken toward implementation.
Customers of the UK’s TSB or users of a virus-infected Spanish banking app may not fully appreciate the millions of euros banks have spent upgrading their systems when they cannot access their money, or when others can access it too easily. Such public relations disasters may deter others in the financial services industry from upgrading their systems. They should not; they reinforce the need for strong technology implementation plans and collaboration ranging from the boardroom to operational centres.
The fund industry has not been struck by such high-profile technology failures to date, but that may not be simply down to luck or perfect implementation skills. The sector lags its peers in adopting cloud services, artificial intelligence, instant transactions, straight-through processing and other technologies that are changing the face of other financial businesses.
The first step in implementing new technology is to assess realistically what your fund business needs, from regulatory reporting to cost controls or business intelligence, and why. Without an accurate understanding of genuine requirements, 39% of all IT projects are likely to fail, according to the Project Management Institute.
Early steps should also include an honest assessment of what resources, experience and expertise an organisation currently possesses and where gaps exist – and what is possible in terms of cost and resources. Says FinSoft chief technology officer Dirk Wolfgramm: “Small and medium-sized asset managers tend to have difficulties running software in their own environments due to lack of processes and resourcing capacity to manage custom software on their own.”
As other industries have discovered, and the rise of Amazon Web Services attests, it may be cheaper and more convenient to rent computer server space and software than to own it, in the form of cloud computing and software as a service (SaaS), also known as managed software. “We believe that using managed software is beneficial for smaller businesses as they don’t have to run the software, just use it,” Wolfgramm says.
On cost grounds alone, the fund industry will adopt cloud solutions in significant numbers. Fund managers need to prepare for that, as do service providers who must learn how to design their systems for efficient and ‘always on’ use of hosting servers. A shift towards domain-driven design (DDD) will require deep integration between the many microservices that can leverage it. Early movers will have the advantage.
SaaS need not be seen as a threat by existing tech staff, but should free them to concentrate on maintaining the firm’s technological resilience, and give them time to plan for further innovation in the fund ecosystem. Regulatory measures such as Circular 19/714 from Luxembourg’s CSSF set out requirements for asset managers that rely on external technology providers. These could be seen as a barrier to adoption, but actually they offer much-needed clarity on governance, audit, continuity and other risks and responsibilities in relation to cloud computing.
The rules also underline that the fund management ecosystem is never static, including the regulatory framework determining how and where managers invest, and the security, compliance and reporting requirements that sit alongside them. The European Securities and Markets Authority is introducing stress tests, and reviews of market infrastructure, MiFID, PRIIPs and other legislation could require significant IT systems changes in the coming years, along with fund liquidity requirements and sustainability reporting. Outsourced system providers must anticipate and adapt to those changes for their fund management clients.
The roles of IT staff and others may change in this new environment. Business analysts and IT project managers will need the expertise in software adoption to anticipate and plan for change, and to bring colleagues onside as new services are adopted.
Wolfgramm argues that for all the industrys’ reluctance to change, cloud computing is being increasingly embraced as an important contribution to efficiency. And it also provides firms with a foundation to prepare for future technology challenges.