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The Right Tools for Nailing New Regulatory Requirements

There's growing concern in the mutual fund space about new regulatory requirements designed to increase transparency about business practices and generally expected to raise the stakes for fund firms and managers. In the rush to become compliant, up-to-date technology proves to be imperative in helping companies track performance and various types of risk, and ensuring that business operations are being run as efficiently as possible.

BNY Mellon offers fund managers just that. Jim Cecere, Head of Product for Global Financial Institutions, talks with Money Management Executive about how new regulations will impact the fund industry, and how BNY Mellon's product offerings help organizations address some of their bigger concerns in achieving compliance.

Proposals to change the regulatory landscape for investment managers and funds have been a hot topic for the past couple of years. Are those trends changing the conversations you are having with your clients?

Absolutely. While there is still a lot of uncertainty about the final impact of proposed regulations, there is no doubt that the industry has only begun to touch the tip of the regulation iceberg. The regulatory landscape and its potential impact on the funds industry is part of almost every client conversation. Requirements from the various regulators are putting pressure on our clients and the entire industry. The resources needed to comply from both a people and technology perspective are straining organizations and potentially requiring them to invest in upgrading their systems and hiring additional staff. Clients are looking for solutions on how to support the infrastructure needed while still being able to focus on their core competencies.

In a recent PWC PricewaterhouseCoopers (PwC) study, 83% of investment managers cited legal and regulatory issues as their greatest challenge. Those are the primary concerns that we are hearing from clients. The need for improved risk management and compliance reporting are two examples of where clients are looking for additional support.

How have operational departments within U.S. fund management businesses been impacted by crisis-related regulatory pressure, both domestically and internationally? How have asset service providers adapted to help clients with these issues?

Operations groups are spending more time and resources addressing issues like risk management, compliance and reporting. Fund managers are taking a hard look at their infrastructures and evaluating how they can address new regulatory requirements. One of the ways that they can gain improve efficiencies and manage costs is to outsource components or their entire investment operations so they can concentrate on their core competencies of gathering and managing assets. In a PwC survey, 40% of fund managers indicated that they plan to outsource at least one business process this year. We have seen increased interest by managers to outsource all or part of their middle and back office so that they can concentrate on front office activity. BNY Mellon has created OnCore, an integrated outsourcing business unit, to meet the increased demand for outsourcing services, which has been extremely well accepted in the market.

So new regulatory requirements have actually been good for asset service providers. Transparency, disclosure requirements and new regulatory reporting that impact traditional business models have allowed BNY Mellon to be a stronger partner.

Have institutional investors, such as pension plans or foundations and endowments, added more pressure to fund management operations (perhaps through asset changes, or through reporting requirements), and how have these investors affected both fund managers on the one hand, and service providers on the other?

Institutional investors are requiring greater transparency from their fund managers for management reporting and for regulatory reporting. This is where BNY Mellon has been able to provide value to our fund manager clients. As the market need for transparency and asset-level detail grows, BNY Mellon's approach to analytics and reporting has also expanded and become more sophisticated and innovative. A critical need and function of our Asset Servicing clients is to analyze and manage the various risks of their investments. These needs have grown with increasing alternative investment strategies, recent shocks to economies and markets, and new regulatory requirements. Clients must assess exposure, market, operational, regulatory and other risks. To respond to client demands and to seize the market opportunity enabled by our unique position as a global consolidator of investment information, we formed Global Risk Solutions to focus on expanding and delivering Asset Servicing risk solutions to our client base. We have a full menu of Performance and Risk Analytics products that provide performance and risk reports so managers can provide anything from basic performance to risk summaries by asset classes and global asset allocation to their underlying institutional clients. By putting these products under one umbrella, we can offer our clients a consolidated view of their risk profile.