The Hidden Costs of Regulatory Compliance: What Every Asset Manager Should Know

For asset managers with funds in the European market, the regulatory environment gets increasingly complex every single quarter. Navigating the current labyrinth of requirements while scanning the horizon for new regulations demands substantial time and resources, not to mention dedicated expertise to put it all into practice for every fund, in every market.

We’re exploring the hidden costs of compliance and introducing techniques that top asset managers use to streamline their regulatory obligations, optimise costs, and even get ahead of the pack.

The Exponential Growth of Regulatory Requirements

The regulatory landscape has experienced unprecedented growth in recent years. Robert Botha, Head of Data Operations at FE Fundinfo, highlights the scale of this challenge: "Between 2014 and 2023, we observed the creation of nearly 2,000 new data fields.”  

This explosion in regulatory requirements has led to a corresponding increase in compliance costs, as managers and firms scramble to put in place the staff and solutions to proactively manage disclosure obligations every single month. Botha continues: [This growth is] aggravating one of the top 6 challenges asset managers are facing alongside outdated technology and rising costs - data management."

Discover the not-so-secret weapon for optimising costs without sacrificing growth in our latest whitepaper: The Efficiency Equation: Balancing Compliance, Cost and Technology in Modern Asset Management. 

The Impact on Profitability: Industry-wide Trends

Even as compliance demands increase, asset managers must remain laser focused on profitability. Macro trends in the market like the rise of ETFs are also putting downward pressure on management fees, which puts asset managers’ profitability on the chopping block. According to recent McKinsey research, profits have dropped for two years in a row and are now down 32 percent from the all-time high we saw in 2021.

This trend is particularly concerning given the widening gap between top and bottom-performing firms. The same McKinsey report notes that the gap between the top- and bottom-quartile asset managers continues to expand, with the lowest-profitability asset managers hitting a profit margin that was 28 percentage points lower than their high-performing peers.

The Limitations of Traditional Compliance Tactics

Many asset managers still rely on old school methods like spreadsheets to manage their compliance processes, but these methods are proving inadequate in the face of the growing complexity and volume of regulatory requirements.

For many asset managers struggling with the temporal and financial cost of compliance, automation offers an important step forward. The right technological solutions can reduce the time and resources required for compliance tasks while also improving accuracy and consistency across a higher volume of reports.

Final Thoughts and Next Steps

As regulatory requirements continue to evolve, asset managers must embrace automated solutions to stay competitive. The hidden costs of compliance - from increased people-power to potential fines for non-compliance – will not be ignored." 

You can navigate the complex regulatory landscape while driving operational efficiency and optimising costs. The experts at FE fundinfo will love to show you how.