Buy-side to outsource more compliance functions over next five years, study finds

New report suggests that spending, automation and outsourcing of compliance functions at buy-side firms will increase over the next five years.

Asset managers are likely to increase the automation or outsourcing of compliance functions for regulations such as MiFID II over the next five years, according to a new study.

A survey of senior buy-siders carried out by BackBay Communications and Osney Media found that 76% of respondents have already automated or outsourced at least some compliance functions.

Although 58% of asset managers polled stated that they intent to outsource or automate more compliance functions within five years, while 42% said it would remain the same. No respondents said they plan to reduce automation or outsourcing for compliance. 

The study also found that a majority of 68% of buy-siders expect company budgets on regulation to increase, with 28% stating between 3-5% of total revenues will be spent on compliance in five years.

Robotic process automation and machine learning or artificial intelligence were jointly identified by 30% of those surveyed as technologies which could have the biggest impact on compliance in the future.

“With the advent of regulations like GDPR and MiFID II, it’s become clear that many firms are still unsure of how to best meet the ever-changing regulatory standard and what technology’s role should be,” said Bill Haynes, CEO and founder of BackBay Communications.  

“These uncertainties also present great opportunities for asset managers to proactively put the processes in place to make the most of what these new technologies and platforms have to offer in terms of client service and engagement. Although it poses a challenge for asset managers, this survey and others like it provide valuable insights to track the change.”

In terms of compliance with MiFID II and despite it being a European regulation, 80% of asset managers surveyed – over half of which were based in North America – said they had been impacted to some extent.

One in four added that MiFID II presents a significant challenge for their business, while 15% said it had negatively impacted their competitiveness.

“The regulatory landscape for asset management has been in constant flux since the financial crisis began a decade ago,” added James Hatwell, content producer at Osney Media.

“As such, it is no surprise that many of our survey respondents believe compliance costs will continue to rise in the coming years. As new technologies begin to take centre stage, firms are presented with both opportunities for cost-savings and additional compliance challenges. It will be interesting to see which firms can make the most of these emerging platforms.”

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