The challenges for the financial services industry
The accelerating growth in the investment and wealth management market has coincided with increased regulation of the financial services sector. In particular, financial institutions face a number of rules on how they should be organised (e.g. AIFMD), what they should report (e.g. FATCA/CRS), what reviews they must carry out (EU 4th AML Directive) and how they protect personal data of their clients (GDPR). Fund managers, compliance officers and trustees therefore have to understand their clients better, demonstrate up-to-date compliance and report annually to both regulators and tax authorities across all of their client base. This increased CDD and reporting activity absorbs internal resource, diverting them from the core business and driving costs that cannot always be allocated to fees.
In particular, in the fund sector asset allocation, within a limited market results in investors holding multiple funds in their portfolios. As a consequence, regulatory requirements mean that fund managers are requesting and maintaining the same identification documents several times for one investor, which increases costs and additional burden for both parties. Furthermore, funds are required to report annually for FATCA and CRS. This adds to the information that needs to be collected from investors and is further complicated by variations in national deployment of FATCA and CRS. Funds are often further linked with a chain of other financial institutions, such as banks and trust companies, that also require similar sets of information and are required to report on their account holders.
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