Photo credit: Vittorio La Fata
Depositary banks today operate in a world of complexity – indeed, it is quite staggering to consider the combination of constraints across the UK and Europe.
There are ever-changing regulations across UCITS, AIFMD, SFDR and the Taxonomy Regulation, as well as rising reconciliation volumes and inconsistent data quality. So let’s briefly consider how a typical depository bank might have approached this complex environment over recent years.
Traditionally the approach by financial institutions across the value chain of fund management has been to manage their operations discretely. This may be understandable, but the unfortunate side-effect is organisations that work in siloes – with a lack of traceability, poor data quality, issues with regulatory compliance and fund structures that require more sophisticated controls. And siloed businesses end up with fragmented systems.
Institutions are not naive to these issues – so their next approach is to try to connect their siloes and somehow ‘patch’ together their disparate systems. The downsides of dealing with fragmented systems through temporary fixes, workarounds and patches should, however, be obvious.
Organisations inevitably fall back on manual processes and spreadsheets to connect disparate data. They are still exposed to the same risks of data, compliance and traceability – only now there is a chaotic tech infrastructure to contend with too.
Natively integrated architecture
The next chapter of the story is simple. Fund management institutions are too siloed – and the solution is data integration. Instead of applying more patches, depositary banks should adopt natively integrated architecture that eliminates fragmentation at its root. Some businesses are already doing this and the trajectory across the sector is from patching to integrating, from manual to automated processes, and from data siloes to integration.
So imagine a single platform in which a depositary bank can integrate all its separate systems for master data, transactions and documents – it would create huge operational benefits. This is what we wanted to provide through our FundWatch platform, which launched late last year – an integrated end-to-end module for alternative investment funds, centralising in one platform what depositaries currently handle across fragmented systems. The modular platform enables real-time dashboards, automates multi-source checks and reduces the manual activities that burden operational teams.
There is also a document-suggestion engine that indicates in real time which documents are required at each workflow stage, eliminating errors caused by missing or incomplete documentation. The supporting framework addresses the increasing operational and regulatory complexity faced by financial institutions in fund management, offering vertical modules for depositaries, transfer agents, fund administrators, AIFMs and investment managers.
Data integration does offer significant benefits, but it is not an end in itself. Instead it provides institutions with the foundations for something even more powerful: process integration. By integrating data in one platform organisations can simultaneously streamline their processes and workflows, therefore realising genuine operational efficiency and reducing risk.
“The most effective solutions are those born from direct collaboration between clients and providers.
If data integration is an opportunity to bring together siloed, fragmented systems, then restructuring can be an opportunity to connect and enhance a workforce.”
You should not just take my word for it, though! A top depositary bank in Luxembourg measured its outcomes after two months using the framework and found a 40% reduction in onboarding times, a 65% reduction in the use of email for operational activities and a 50% reduction in document filing and retrieval times.
On the controls side, meanwhile, the bank reported a 90% reduction in manual errors, a 50% increase in audit effectiveness, thanks to real-time audit trails, and an overall impact of operational time and effort cut by 50%.
The most effective solutions are those born from direct collaboration between clients and providers. As we have collaborated with depositary banks over recent years, we have surfaced many clear needs: fewer low-value manual tasks, better data quality and demonstrable controls for supervisory authorities.
So, the platform delivers by automating what was manual, integrating what was fragmented and making traceable what was opaque. The outcome is streamlined processes, reduced operational risk and lower costs.
The future of integration
Data integration does not come without disruption, however. Institutions that make the changes set out above need to make strategic – and difficult – decisions. In a typical custodian bank, for example, each silo has a dedicated team so data integration – which breaks down the walls of those siloes – inevitably means change for those resources.
What happens to those legacy job roles and functions? Should teams be merged or disbanded? Should staff be upskilled or retrained? The reality is that integration and automation do lead to restructuring – which can of course be challenging for both employees and leadership.
Let’s look at those questions through a more positive lens, however. If data integration is an opportunity to bring together siloed, fragmented systems, then restructuring can be an opportunity to connect and enhance a workforce. Banks can leverage the change as an opportunity to upskill their people so they can conduct more strategic roles, to optimise the institution’s operations and to achieve competitive advantage.
Depositary banks have operated in siloes for too long. They now have the right tools to break down those walls.
Gianluca Berghella is CEO of Armundia Group
