The investment community is underestimating the amount of technological restructuring and issues it will have to resolve, in order to be compliant under Solvency II, says one of the chiefs at technology provider DST Global Solutions.
The asset management industry is entering a period of change and potential turmoil, says Des Gallacher, global head of data management and analytics at DST Global Solutions. In this instance, the turmoil is caused not by market conditions but by intentions and pressures from investors and regulators. The most underestimated part of Solvency II is that firms do not realise the amount of extra data they will need to collect, There are higher data requirements but first of all, asset managers need to look at where the gaps are, rather than making substantial new data acquisition investments. To comply with Solvency II, asset managers will need one centralised point to check their data. Providing a single view of the master files will be critical.
Solvency II is the most challenging and far-reaching regulation that insurance firms and consequently, asset managers need to deal with.According to Deloittes Solvency II Survey 2010, data infrastructure, quality and handling is the highest priority task asset managers face over the next 6 months.
Solvency requirements will involve more complex calculations of factor-based formulas, stress testing and financial models, which will mean that firms will need make significant changes to systems and change balance sheet reporting to a fair-value basis. Firms will also have to prepare for greater public disclosure of financial statements, risk measures and capital calculations.
Gallacher also highlighted the latest version of the reporting framework; the FSA Quantitative Impact Studies 5th Release (QIS5).
If one looks at the Assets tab, the requirement here is to be able to aggregate and alternatively report bond exposures by country, currency and credit rating, says Gallacher. Although this is fairly simple when compared to others in the QIS, it will still present a considerable challenge to asset managers, as it will require accurate identification, uniform pricing and consistent aggregation of bond exposures across each business unit.