Two of the most significant challenges facing the transfer agency space today are the increasingly burdensome requirements of various pieces of investor regulation, and the need to move toward increasingly automated processes; however, these challenges are to an extent contradictory. Core day-to-day tasks are being heavily automated, but investor regulatory obligations are so much more extensive and complex that significant automation in this area is a distant dream. To overcome this burden, an amalgamation of investor regulatory requirements should be introduced, whereby complying with one regulation could serve as evidence of a requirement for another regulation. In short, a common dataset could be used to satisfy several reporting regulations.There is some significant overlap of regulatory requirements. For example, both the Common Reporting Standards and EU 4th Anti Money Laundering Directive mandate the reporting of standard investor information including investor names, addresses and dates of birth. More significantly, they also require the reporting of underlying beneficiary information to greater or lesser extents. The 4th AML Directive requires EU countries to set up registers to record the ultimate ‘beneficial’ owners of companies, accessible by the relevant authorities within each country. Under the Common Reporting Standards, some investor types will also have to disclose the underlying beneficial ownership. By requesting this information separately, there is a significant duplication of work.
One of the challenging areas is around investor due diligence. It is currently hard to gauge what level of automation exists in the transfer agency space as it can vary significantly from firm to firm; however, there is no doubt that this is a key initiative for all transfer agency operations. The goal is to streamline as many workflows as possible in order to increase efficiency, reduce risk and keep costs down. Now, due to the increase in investor regulation, including the additional requirements on tracking high risk investors, some of these workflows are facing difficulties. The investor due diligence necessary requires manual intervention to review documents and to request additional information from investors.
A harmonisation of reporting requirements of overlapping investor regulations would offer a great way to reduce the burden for the transfer agent, through limiting the need to provide identical data to different regulators. It would be necessary to establish specific standards covering the volume and detail of data before the back office can look to automate processes from a reporting perspective. Increased investment in technology for investor tracking and reporting would also enhance efficiencies within this area. These standards would be particularly pertinent when regulations stem from different regulatory bodies, such as the OECD or the EU, and it is likely that there will have to be significant pressure from within the industry for these groups to have better co-ordination.
The willingness of regulators to allow the harmonisation of reporting is an area of concern. While both financial institutions and back office administrators are eager for any way to reduce or eradicate the duplication of reporting, regulators have so far not revealed any significant moves to do so. Without their consent and contribution, firms are likely to continue to struggle with managing the regulatory burden.