The lockdown introduced to slow the spread of Covid-19 has brought with it some of the largest operational challenges the investment industry has recently experienced. BNY Mellon’s Pershing reviews how the wealth management industry is grappling with new challenges to firms’ operational resiliency, and the hidden opportunities they provide.
The industry has reacted well for now, but the real test is its response in the longer-term
The investment industry has reacted quickly and professionally to adjust to the operational challenges a near-universal shift to remote working has created, though some firms have been able to respond more quickly than others. For most firms, the main challenge has been managing the paper-based processes that still exist in the industry, including opening the post and dealing with cheques. This implied identifying essential in-office staff first, which not all firms did as part of their business continuity plans.
The upside of this has been to expose the primary challenge ahead for the industry: despite the transformation of wealth managers and advisers’ primary functions over the past decade, the pandemic has exposed that for many firms, back and middle office functions are still very manual. While the front office is likely accustomed to remote working, many core manual processes in the back office are difficult to replicate remotely. For instance, processing transfer requests or fund applications received via post in the office.
This provides an opportunity for firms and the industry more broadly to come out of the pandemic stronger than they entered it, achieving the dual purpose of rethinking processes that can be a pain point for clients and a risk for continuity planning in the future.
Executives must ask themselves: how secure is my remote ‘office’?
Compared to the front office, which is hampered by the difficulties in remote collaboration, the challenge for the back office is much harder.
Handling personal data and client-sensitive information in the comfort of your own home might not be the regulator’s idea of optimal compliance unless you can prove that your remote working environment is as secure as your office environment.
But this difficulty shouldn’t lead to complacency: firms will still need to comply with regulatory requirements and will need remote access to secure systems to do this. Cyber-security measures have helped, but the onus on personal accountability and decision-making is even more crucial.
The effective implementation of the Senior Managers and Certification Regime (SMCR), where accurate records of decision-making are key, is a good example of this.
Be prepared for the inevitable regulatory look-back
Although regulators have been quick to recognise the challenges firms face as they focus on the continuity of operations, they will eventually review how firms adapted and managed their back and middle office functions during this period. It’s crucial that business decisions made now meet regulatory requirements but also allow firms to continue serving their clients.
For wealth and investment managers, ensuring they remain risk-focused will ensure they remain strong and resilient in the future—and may cause issues for parts of the industry over the coming years.
Ultimately, the definition of operational resilience hasn’t changed due to Covid, but it has forced many firms to change the way they view ‘business as usual’. Firms need to seize the opportunities the crisis affords, including for staff, clients and the industry
Pershing provides a broad range of financial business solutions to investment banks, broker-dealers, wealth managers, financial planners and advisers across EMEA. We provide sophisticated front-end technology and flexible middle office capabilities with execution, settlement and custody services. These are supported by a robust regulatory and compliance framework with dedicated client asset experience and expertise.