The global pandemic, Covid-19, and the introduction of mandatory ESG reporting have changed the way the world does business forever and has driven the removal of many traditional barriers to digital transformation. Financial services institutions were already on their digital transformation journey, but a rapidly changing environment has given added impetus. This has made digital transformation a top priority with new technologies enabling the Funds industry to embrace those changes.
Digital transformation in the funds industry
AJ Harper, Head of Sustainable Finance, ETFs and Asset Managers, Euroclear and Alexander Stevens, CEO, Greenomy recently joined other expert panellists Luc Falempin, Tokeny Solutions and Petra Roche, Metrosoft at a FundsTech roundtable to discuss the Digital Transformation Opportunity in the Funds industry.
The Funds industry is littered with lots of old-fashioned ways of collecting, processing, handling and reporting data. The switch from paper, Excel spreadsheets, PDFs and the same data held on multiple systems, often unreconciled, will be difficult, even with new technologies. The demand is to get more data, visualise it in better ways through dashboards with clear views into the underlying data that constitutes people’s ownership of investment products. The automation of ESG reporting, blockchain and tokenisation are the enabling tools for this revolution to take place.
Co-operation, collaboration and transparency will be key in grasping the opportunities offered. This is exactly where blockchain brings value. The opportunity now is how to get Digital Ledger Technology (DLT) to support that process in a lean way. DLT has the potential to streamline and digitise the process, eliminating the need for reconciliation. Another important step is to make sure everyone understands what they can do with blockchain technologies and start using them with confidence. Of course, it’s a long process but the industry needs more transparency, personalisation and more control over how data is used.
Transparency and trust will be fundamental with key players working together to create the new ecosystem, perhaps with regulatory endorsement. Although the experience may be highly personalised to meet individual user requirements, it’s the collective experience of a common ecosystem that also builds transparency and trust.
As Alexander Stevens, CEO of Greenomy, commented during the roundtable “in technology innovation, several players need to work together. It’s all about putting in place a collaborative ecosystem that can help identify the challenges, identify the solutions, put them in place, pilot them, and then push them to production and make them mainstream and used by everyone.”
Digital transformation has so far been most evident in the field of Environmental, Social and Governance (ESG) innovation. The lack of ESG data historically, the necessity of putting in place continuously changing mandatory and complex reporting, has driven co-ordinated responses. Standardisation of legislation is leading to common reporting templates which can be converted into data models, fully customisable for each financial institution’s own unique reporting needs.
For reporting, once sufficient source data is gathered, there is the opportunity to create a network effect, this is what the new ecosystem will deliver. Within the new ecosystem the data becomes very valuable because the authenticity is high, the granularity is high, and the users of it can then trust it to make decisions based on it.
According to AJ Harper, Head of Sustainable Finance, ETFs and Asset Managers at Euroclear, it’s not only about the technology, but what you do with it. “It’s not the data science, it’s how you apply it. The terms that underpin our challenges today are actionability and interoperability. Actionability is now not just the data and analytics, but the ability to take the analytics and create impact through action – so, implementing changes in the investment portfolio.”
Greenomy is already collecting the required data for ESG reporting from a multitude of different sources, original source data, which may then be certified to confirm its integrity. When users access that information, it provides comfort because it is original data, not proxy data. The crossroads we have reached is how to collect that original data, using people in back offices or using AI and automation. AI can be an aggregator, sourcing the many different data sources, but it also needs to be taught, requiring some level of human intervention. There is also the question of whether regulators will accept AI as black box algorithms, or if it will be necessary to explain the very complex algorithms in plain language to gain approval for their deployment.
Financial services tend to hold on to old processes too long, and a change in mindset is required to gain the greatest benefit from new technologies. The opportunity offered by new technologies is to revolutionise the old processes by accepting and embracing them. Collaboration and co-operation together with data transparency will be the key to the new ecosystem as no institution can create solutions in isolation. The destination may be highly personalised, but the journey they take will be a collective one. If the Funds industry trusts in the changes and embraces the new ecosystem, then it will work and everyone will benefit.
This is a short summary of a roundtable hosted by FundsTech. You can read the full transcript of this session on : The digital transformation opportunity (fundstech.com)