Every asset manager is trying to increase the assets under management of their funds, even the best-performing funds must be marketed and distributed to ensure a constant inflow of new assets. This demands that asset managers are on top of their game, not only when it comes to structuring and managing investment funds, but also in understanding regulatory restrictions around the marketing and distribution of investment funds.
How can FinTech facilitate fund distribution? How can it help asset managers grow their fund business? And what is the role of regulatory technology? These are the topics of this article.
The regulatory challenge of distributing investment funds globally
The future business model for fund distribution remains an unresolved issue for banks and wealth managers, as regulatory ambiguity is restricting income potential across the financial sector (writes EY in an article on the future of fund distribution in early 2021). In a paper-based compliance reality, such restrictions stand out through different inefficient practices.
Today, regulatory questions on cross-border fund distribution tend to be resolved on a case-by-case basis and thus through lengthy and costly consultation processes. These lengthy processes stem from the fact that legal and compliance experts often find it difficult to obtain and interpret regulatory information from text-based resources in a timely and cost-efficient manner.
The laws governing requirements for offering or marketing investment funds are different in every country. In fact, there are countries where fund distribution rules are so lax or loosely defined that a common mistake for asset managers is to assume there are no rules at all, which exposes their clients and partners to risk.
Other countries foresee fewer regulatory restrictions for certain client types, such as institutional clients or regulated entities, or stipulate requirements at investment fund level, such as registration requirements.
For distributing mutual funds alone, there are 57 different regulatory rules per country on average. This makes the maintaining of all relevant rules a huge task for internal asset managers.
Market counterparts expect professional expertise on both investments and regulations. To provide product expertise and keep track of constantly changing regulatory requirements across all operating jurisdictions is an extremely difficult task.
All of these considerations combine to create huge compliance costs and a significant loss of business potential for asset managers.
How FinTech facilitates cross-border fund distribution
Financial and regulatory technology has the ability to unlock radical changes in cross-border fund distribution. This is achieved through a shift from manually obtaining legal clarifications on a case-by-case basis towards automating compliance checks in relevant tools and processes. Through the use of regulatory technology, asset managers get instant answers to their most pressing regulatory questions.
Apiax provides asset managers with answers to the most frequently asked questions around marketing and distributing funds globally through a variety of interfaces, such as apps or APIs.
In what we call embedded compliance, manual and paper-based compliance knowledge is turned into yes-or-no digital rules and implemented right where it is needed in asset managers’ tools, processes and teams.
The excessive overhead that comes with regulatory compliance is thereby eliminated and financial institutions are enabled to realise their full business potential.
Benefits of technology-enabled cross-border fund distribution
To be able to stay compliant through all cross-border fund distribution activities, financial institutions are encouraged to introduce digital fund distribution rules, a user-friendly interface and an API-first approach.
Digital fund distribution rules allow for constant access to updates of regulations in real-time.
A user-friendly interface such as an app provides fund-distribution professionals with fast access to regulatory dos and don’ts.
And lastly, an API-first approach delivers regulatory answers to all necessary channels.
When technology-enabled fund distribution is implemented, financial institutions will profit from the benefits. These include:
● Reaching more investors: understanding requirements across more jurisdictions to reach more investors.
● Reducing costs: shrinking time-consuming legal and compliance processes.
● Minimising risks: understanding the dos and don’ts to minimise regulatory and reputational risks.
● Adding value: realising the most tailored and value-added offers regardless of regulatory complexity.