As regulators and tax authorities become more active and far-reaching, many Asset Managers are asking how they can move from ambition to action on their regulatory strategy.
If you are like most fund managers, you are probably spending more and more of your time thinking about compliance. In part, the problem is quantity. The Asset Management sector is among the most heavily regulated in the world. Depending on where you operate, invest, and raise funds, you may also be subject to a range of different regulations or tax codes across a number of different jurisdictions.
Yet it also comes down to complexity. Even where there is consensus at the macro level (like with the Global Minimum Tax) the application can vary widely across markets.
The reality is that most regulators are playing catch-up on many of the key issues influencing the AM sector today. In many areas, Asset Managers are being left to decipher how the current and future rules might apply, what standards might be expected of them and how to innovate responsibly within the (yet unwritten) rules.
Investors also increasingly view regulatory and tax compliance as a key part of their due diligence when investing with managers. Your regulatory capabilities can also significantly influence future growth as it gives you and your investors' confidence that you can innovate safely and within the guidelines.
Taking a strategic approach
In this environment, what Asset Managers need is an agile but practical strategy. Dealing with tax and regulatory change on a case-by-case basis or as a compliance check-box exercise will likely never give you the insight and efficiency you need to get ahead of expectations. Yet, at the same time, your strategy must be agile enough to be able to flex and adapt as new considerations and requirements arise.
A range of different considerations will likely influence how Asset Managers plan and execute their strategy, one being data and reporting. Another key consideration is human resources and capability. Asset Managers should be very strategic about where they focus their resources and what capabilities they keep in-house.
They should also expect to base their strategy on where they believe their tax and regulatory authorities are going in order to help ensure what they are creating is sustainable and fit for the future. For example, we are now starting to see some tax authorities move to real-time tax calculations and payments, particularly for indirect taxes. It likely won’t be long before direct tax authorities and regulators start wanting to ‘reach in’ to other enterprise systems in order to pull the data they need rather than waiting for it to be pushed.
The other big consideration is your organisation’s ability to change. It takes dedicated attention, experience and deep capabilities to design, activate and maintain a large change program. Few firms likely have the program management, integration or transformation skills that may be required in-house. Sometimes the biggest barrier is simply in the organisation’s ability to turn ambition into action.
Moving from ambition to action
That’s where most Asset Managers are struggling today. Most leaders KPMG professionals speak with say they want to take a more strategic approach to regulatory and tax compliance. They just aren’t sure how to get from here to there.
KPMG professionals’ experience helping Asset Managers design, activate and maintain their regulatory strategy suggests there are five key steps to success.
1. Understand the environment and how it is changing
Based on your organisational strategy and growth objectives, start by identifying your key tax and regulatory stakeholders across current and future jurisdictions. Consider how their regulatory focus and expectations are changing. Think about new and emerging areas of regulatory interest and how they might intersect with your objectives and operating models.
2. Know where you want to go.
Based on your understanding of the environment, your future growth objectives and a realistic assessment of your organisation’s current capabilities and capacity, define your future operating model for regulatory and tax compliance. Think about which capabilities you would see as being ‘core’ to your business and which might provide you with a competitive advantage in the future.
3. Look for leading practices and tested approaches
Understand how other organisations have achieved similar objectives. Keep an open mind to different technologies and operating models that could be adapted. Talk to industry leaders and advisors about their experience. Explore the different in-market solutions and vendors that could support your transformation. Don’t limit yourself to peers in your region or sector.
4. Develop your roadmap
At this point, you should have everything you need to develop a robust roadmap. But the idea is to keep it flexible and agile – like your favourite navigation app does, the point is to keep the destination in mind, but to be flexible and aware enough to be able to adapt as roadblocks appear or as new routes to your destination become available. More often than not, that will likely mean smaller sprints and agile approaches.
5.Execute with support.
Recognise where you might need additional support designing, executing and maintaining your strategy. Think carefully about what types of skills and capabilities you might need through the transition and into the new steady state of operations. Where possible, lean on advisors with deep experience in your markets and extensive relationships with appropriate regulatory and tax authorities.