T+1 Two Years On: Why Automation Is Now the Defining Challenge for U.S. Asset Managers

T+1-Two-Years-On-Why-Automation-Is-Now-the-Defining-Challenge-for-US-Asset Managers

Two years after the U.S. securities industry successfully transitioned to T+1 settlement, the market can confidently regard the initiative as a success. When the move from T+2 to T+1 settlement was announced, many industry participants anticipated significant disruption. Concerns ranged from compressed operational timelines and increased settlement risk to heightened pressure on middle- and back-office teams. Yet, despite these challenges, the industry achieved one of the most significant post-trade transformations in recent decades with remarkably few disruptions.

The successful implementation of T+1 demonstrated the resilience, collaboration, and adaptability of the U.S. capital markets ecosystem. Asset managers, custodians, broker-dealers, fund administrators, and technology providers worked together to redesign processes, improve communication, and accelerate trade workflows.

However, now that the industry has had two years to operate in a T+1 environment, a new reality is emerging. The transition itself may be complete, but the operational pressures created by shorter settlement cycles remain. For many firms, particularly small and mid-sized asset managers, the focus has shifted from managing T+1 to sustaining it efficiently. Increasingly, automation is becoming not simply an advantage but a necessity.

The Initial Impact of T+1

The move to T+1 fundamentally changed the post-trade operating model. Under T+2, firms had an additional day to resolve discrepancies, affirm trades, manage allocations, and address exceptions. The reduction of the settlement window by 50% compressed these activities into a significantly shorter timeframe.

For asset managers, the impact was immediate.

Trade allocations needed to be completed earlier. Matching and affirmation processes had to occur more quickly. Operational teams faced tighter deadlines to identify and resolve exceptions before settlement. Any delays or manual bottlenecks that had previously been manageable under T+2 suddenly became material risks.

Many firms responded by extending operating hours, increasing staffing support during the transition period, and conducting extensive readiness programmes. Operations teams worked closely with custodians and counterparties to establish new workflows and service level expectations.

The industry’s success was largely driven by preparation. Firms invested heavily in process reviews, workflow redesign, and targeted technology improvements to ensure settlement readiness from day one.

What Firms Learned

Two years on, the lessons from T+1 are becoming clearer.

The first lesson is that operational efficiency is no longer optional. Under T+1, there is little room for manual intervention. Every exception requires faster resolution, every workflow must move more quickly, and every delay carries greater risk.

The second lesson is that visibility across the trade lifecycle is critical. Firms that invested in real-time monitoring and exception management capabilities were better positioned to identify issues before they impacted settlement outcomes.

The third lesson is perhaps the most important: firms that automated key processes adapted more effectively than those that relied on manual workflows.

While many larger asset managers entered the transition with mature operating models and significant technology investments, smaller firms often relied on spreadsheets, email-driven processes, and fragmented systems. These approaches may have been sufficient under T+2, but they are increasingly difficult to sustain in a T+1 environment.

The Growing Challenge for Smaller Asset Managers

Large global asset managers have generally absorbed the operational demands of T+1 through investments in technology, data management, and workflow automation. Smaller firms, however, face a different challenge.

Many boutique asset managers and emerging investment firms operate with lean teams and limited technology budgets. Operational teams are often expected to manage growing volumes of activity without corresponding increases in headcount.

In this environment, manual processes create both operational and strategic risks.

Operational teams spend valuable time chasing trade confirmations, reconciling data across multiple systems, managing exceptions manually, and responding to settlement issues. As transaction volumes increase, these inefficiencies become more pronounced.

Furthermore, regulatory expectations continue to rise. Investors increasingly expect operational excellence, transparency, and resilience from their asset managers regardless of firm size.

The result is a growing gap between firms that have embraced automation and those that continue to depend on manual processes.

Automation Has Become the Next Phase of the T+1 Journey

The industry’s successful migration to T+1 should not be viewed as the end of a transformation programme. Rather, it represents the beginning of a broader shift towards highly automated post-trade operations.

Automation addresses many of the challenges exposed by T+1.

Automated trade processing reduces operational touchpoints and minimizes the risk of human error. Automated exception management allows firms to identify and prioritize issues before they become settlement failures. Automated reconciliations improve data quality while reducing the burden on operations teams.

Perhaps most importantly, automation enables scalability. As firms grow, automated processes can handle increased volumes without requiring proportional increases in operational resources.

This scalability is becoming increasingly important as firms seek to remain competitive in an environment characterized by margin pressure, regulatory complexity, and growing investor expectations.

Why the Case for Automation Is Stronger Than Ever

Two years of operating under T+1 have provided firms with a clear understanding of where inefficiencies exist.

Many organizations that initially managed the transition through additional staffing or temporary workarounds are now recognising that these approaches are not sustainable over the long term.

Labour-intensive processes increase operational costs and expose firms to key-person dependencies. Recruiting experienced operations professionals remains challenging, while increasing headcount does not necessarily solve underlying workflow inefficiencies.

Automation offers a more sustainable solution.

By reducing manual intervention, firms can improve settlement performance, lower operational risk, and redeploy staff towards higher-value activities such as oversight, analytics, and client service.

In an increasingly competitive market, these benefits are becoming strategic differentiators rather than simply operational improvements.

The Role of Salerio®

For smaller and mid-sized asset managers, one of the key barriers to automation has historically been complexity. Traditional transformation projects often required significant investment, lengthy implementation timelines, and dedicated internal resources.

This is where specialist automation providers such as corfinancial® are helping to reshape the market with the Salerio exception management based trade matching and settlement solution.

Salerio’s approach focuses on enabling firms to automate critical operational workflows without the cost and disruption typically associated with large-scale technology projects. By streamlining post-trade processes, reducing manual intervention, and improving operational visibility, firms can achieve many of the benefits traditionally associated with larger technology programmes.

Importantly, this allows smaller asset managers to compete on a more level playing field with larger organizations. Automation is no longer the exclusive domain of global institutions with extensive technology budgets. It is increasingly accessible to firms of all sizes.

As the industry continues to evolve, solutions that deliver rapid operational improvements while supporting long-term scalability will become increasingly valuable.

Looking Ahead

The transition to T+1 will ultimately be remembered as more than a settlement cycle change. It exposed inefficiencies that had existed within post-trade operating models for years and accelerated the industry’s move towards automation.

Two years on, the firms that have thrived are not necessarily those with the largest operations teams. They are the firms that embraced more efficient workflows, improved visibility, and invested in automation.

For smaller asset managers, the message is particularly clear. The question is no longer whether automation is required for a T+1 world. The question is how quickly firms can implement it to remain competitive, resilient, and scalable.

The industry’s successful adoption of T+1 proved what can be achieved through collaboration and preparation. The next chapter will be defined by automation.

BITA REG-9™: The Premier Solution for Fiduciary Compliance and Oversight

BITA REG-9: The Premier Solution for Fiduciary Compliance and Oversight

In today’s increasingly complex regulatory environment, trust companies, national banks, and wealth management institutions face growing pressure to maintain effective oversight of their fiduciary activities while operating efficiently. Yet many organizations continue to rely on spreadsheets, manual processes, and legacy systems that were never designed to support the comprehensive requirements of Regulation 9 (Reg-9).

BITA REG-9 was built to change that.

 

Purpose-Built for Reg-9 Management

Unlike generic trust accounting and operations platforms, BITA REG-9 is specifically designed to help trust institutions manage, monitor, and document their Reg-9 compliance responsibilities. While many organizations utilize other’s systems for core trust operations, these platforms often provide only limited functionality for Reg-9 oversight and administration.

BITA REG-9 fills this critical gap by delivering a dedicated compliance and oversight platform tailored to the unique needs of trust departments.

The result is a solution that enables institutions to move beyond spreadsheets and fragmented workflows and adopt a centralized, structured approach to fiduciary oversight.

 

Eliminate Manual Processes and Duplicate Work

One of the most common challenges facing trust organizations today is the amount of manual effort required to maintain compliance records and prepare for audits and examinations. In many institutions, information must be entered multiple times across different systems, creating inefficiencies, increasing operational risk, and consuming valuable staff resources.

BITA REG-9 streamlines these processes by centralizing information and automating key compliance workflows. By reducing duplicate data entry and minimizing reliance on manual spreadsheets, organizations can significantly improve productivity while strengthening controls and data accuracy.

 

Empower Your Team to Focus on Higher-Value Activities

Trust professionals should spend their time serving clients, managing fiduciary relationships, and providing strategic oversight, not maintaining spreadsheets or compiling reports by hand.

BITA REG-9 helps organizations free their staff from time-consuming administrative tasks, allowing them to focus on activities that deliver greater value to clients and the institution. By simplifying compliance management and oversight processes, teams can work more efficiently and effectively across all areas of trust administration.

 

Better Reporting. Better Oversight. Better Decisions.

A frequent complaint among trust departments is the difficulty of producing meaningful management reports from existing systems. Gathering data from multiple sources often results in inconsistent reporting, delayed decision-making, and limited visibility into compliance activities.

BITA REG-9 provides comprehensive reporting capabilities that transform compliance data into actionable management information. Executives, compliance officers, and trust administrators gain greater transparency into oversight activities, enabling faster decisions, stronger governance, and improved accountability.

With flexible reporting and monitoring tools, institutions can easily demonstrate compliance, identify trends, and maintain confidence in their fiduciary processes.

 

The Industry’s Dedicated Reg-9 Platform

As regulatory expectations continue to evolve, institutions need more than generic operational software. They need a specialized platform that understands the unique requirements of fiduciary oversight.

BITA REG-9 stands apart as a dedicated solution created specifically to support Regulation 9 compliance management. By replacing outdated manual processes with a modern, efficient, and centralized system, organizations can improve oversight, enhance reporting, reduce risk, and increase operational efficiency.

For trust companies and national banks seeking a smarter approach to Reg-9 administration, BITA REG-9 is the premier solution for managing compliance, strengthening governance, and empowering fiduciary teams to perform at their best.

Fiduciary Compliance Challenges for Trust Companies

Fiduciary Compliance Challenges for Trust Companies

U.S. trust companies are under intense regulatory scrutiny. State banking regulators with their own variations/versions of the OCC REG-9 rule, expect rigorous fiduciary controls, including documented audit trails and routine reviews. For example, interagency guidance mandates a review of every trust account at least once annually. Delaware and South Dakota, two leading trust jurisdictions, both hold trust firms to high standards. Both South Dakota leading with 120 + Trust companies while Delaware now “boasts over 60 trust companies” (mostly affiliates of major financial institutions), require a “thorough examination” of all books and a complete annual audit of “all fiduciary activities”. In short, fiduciary compliance is no longer optional or paper-based – regulators demand comprehensive, timely oversight.

Persistent Compliance Challenges

Trust department leaders report that many compliance tasks remain fragmented and manual. Key pain points include:

  • Fragmented processes: Regulators note that despite stringent fiduciary compliance requirements, many trust companies “still manage these reviews via spreadsheets, email threads, and legacy systems”. This manual approach makes it easy to overlook issues or miss review deadlines.
  • Incomplete audit trails: Manual workflows often leave gaps. As one compliance study found, institutions struggle with “untimely data and incomplete audit trails” and “poor exception tracking”. Without an automated system, it can be difficult to produce a clean, chronological record of every action during a trust review, exactly what examiners expect.
  • Timeliness and oversight: Spreadsheet-driven scheduling leads to “missed review cycles” and delayed investigations of issues. Busy officers may forget periodic administrative tasks (e.g. annual account re-verification), creating regulatory risk.
  • Unique‐asset oversight: A critical Reg-9 (Fiduciary compliance) requirement is the annual review of all unique or hard-to-value assets (real estate, private equity, insurance policies, etc.) in fiduciary accounts. Regulators explicitly warns that reviews must cover “all account assets, including unique and hard-to-value assets”. Yet without automation, tracking these bespoke assets, getting valuations, checking insurance or trust instructions and recording whether assets are appropriate is both time-consuming and easy to get wrong.
  • Clunky and Glitchy: It’s not enough to get by with a system. Good systems help attract and retain staff as well as making them more efficient and their job easier.

Delaware and South Dakota Expectations

Trust companies headquartered in Delaware and South Dakota operate under some of the most rigorous fiduciary oversight in the nation. Both states demand precision, transparency, and consistency in every aspect of trust administration. Regulators in these jurisdictions expect institutions to maintain accurate and current trust records, perform timely reviews of all holdings, and document fiduciary decisions with complete audit trails. Whether through Delaware’s well-developed statutory framework and courts or South Dakota’s direct regulatory supervision and audit requirements, the message is the same — fiduciary duties must be carried out with discipline, diligence, and accountability.

BITA REG-9™: Automating Fiduciary Compliance

In this environment, trust companies are investing in technology to turn compliance into a strength. BITA REG-9 is an automated platform built specifically for trust departments and fiduciary services. It replaces ad-hoc checklists with dynamic, recurring workflows. For example, BITA REG-9 lets a bank select its choice of pre-acceptance, Initial, Administrative, Regulation-9, and Unique-Asset review questions by trust and account type; thereafter it schedules reviews automatically on the required cycle. Each morning, its rules engine runs portfolio scans: any exceptions (e.g. overdue reviews, missing valuations, or investment breaches) are flagged instantly. These exceptions immediately spawn tasks assigned to the responsible trust officers, with automated reminders to ensure timely resolution. Crucially, BITA REG-9 logs every action in an immutable audit trail, so examiners can easily trace who did what and when.

Automated reporting and governance are core strengths of the system. Upon completing each trust review, the platform generates a fully formatted Reg-9 review report and routes it through pre‑configured approval workflows. Each stakeholder (compliance officer, fiduciary manager, etc.) digitally signs off on the report, which is then automatically stored in the bank’s document repository. The result is an audit-ready file – no manual printing or filing risk – that satisfies regulators’ demands for documented oversight. Meanwhile, executive dashboards give boards and committees real‑time visibility into compliance status, exception trends, and remediation timelines, turning what was once a paper chore into strategic risk-management insight.

Ensuring Audit Trails and Governance

BITA REG-9 was built following extensive discussion with users and addresses each major pain point. By storing data and not having to start from scratch each year, and through automated data completion, it provides a reliable, modern workflow. By automating recurring reviews and checklists, it prevents missed deadlines and enforces consistency across all accounts. By capturing each review and exception digitally, it builds the complete audit trail that regulators demand. And by delivering executive metrics and formal documentation, the platform satisfies corporate governance standards. The result is stronger controls, greater efficiency, and enhanced regulatory confidence exactly what examiners in Delaware, South Dakota, or anywhere expect.

Fiduciary Failures Cost Millions: How the OCC Regulator Enforces Reg-9 Compliance

Fiduciary Failures Cost Millions

Introduction

In recent years, the Office of the Comptroller of the Currency (OCC) has sharpened its focus on fiduciary oversight, handing down a series of high-profile enforcement actions against U.S. national banks and savings banks. These actions are not just warnings, they’re stark reminders of the real-world consequences of failing to meet fiduciary responsibilities under Regulation-9. For institutions that continue to rely on outdated processes and fragmented oversight, the cost of non-compliance could be costly.

The High Cost of Fiduciary Failure: A Wake-Up Call from the OCC

In February 2024, the OCC issued a Formal Agreement and a $65 million civil money penalty against a leading U.S. national bank for systemic deficiencies across its compliance program, investment management processes, and, most notably, violations of fiduciary standards under 12 CFR Part 9 (Reg-9).

This case underscores a critical point: Reg-9 compliance isn’t optional, it’s enforceable, auditable, and expensive when neglected. For national banks, savings banks, and trust companies offering fiduciary services, outdated or manual systems increase vulnerability to these very outcomes.

Where Banks Are Falling Short

OCC Regulation-9 places strict obligations on national banks, savings banks and trust companies to review fiduciary accounts periodically, document their actions, and ensure prudent management of assets. Yet many institutions still manage these reviews via spreadsheets, email threads, and legacy systems.

This patchwork approach leads to:

  • Inefficient manual work with repeated rekeying
  • Missed issues that become problems
  • Untimely data and incomplete audit trails
  • Poor exception tracking and missed review cycles
  • Lack of oversight across teams with weak escalation processes

In an era of heightened scrutiny, these inefficiencies aren’t just operational risks, they’re regulatory liabilities.

OCC Expectations

The OCC is not waiting for institutions to self-correct. With enforcement actions being made public and regulators increasingly demanding real-time oversight, the pressure on trust departments has never been higher.

For compliance officers and fiduciary managers, they must ask:

  • Are we certain every review is completed on time?
  • Do we have a clean audit trail for every decision?
  • Can we prove to the OCC that we’re meeting our obligations?

BITA REG-9™: A Modern Solution for a Modern Problem

Amidst this rising pressure, institutions need more than just diligence, they need automation, transparency, and control. Enter BITA REG-9, a purpose-built solution designed to meet the demands of Regulation 9 head-on.

BITA REG-9 provides:

  • Automated REG-9 reviews (Initial, Admin, and Unique Asset)
  • Real-time rule checks and exception alerts
  • Integrated approval workflows and audit-ready reports
  • Enterprise-level dashboards for senior oversight

With BITA REG-9, banks no longer have to worry about missed deadlines or manual reporting gaps. The platform ensures that every fiduciary account is reviewed, documented, and governed with precision – delivering peace of mind in a high-risk environment.

Conclusion

The OCC has made its stance clear: fiduciary failures will not be tolerated. National banks and savings banks must treat Reg-9 compliance as a top-tier priority, not a background task. As the enforcement landscape grows more unforgiving, the institutions that act now, modernizing their systems and embracing automation, will be the ones best positioned to lead with confidence, not fear.

BITA REG-9 is more than a tool, it’s your institution’s safeguard against costly mistakes and reputational harm.

Turning OCC Regulation 9 Compliance From a Burdensome Chore into a Strategic Advantage

Regulation 9 Compliance - Robot at desk

In today’s rapidly evolving regulatory environment, national banks face growing scrutiny over their portfolio governance and compliance frameworks associated with fiduciary processes within their trustee services division.

OCC Regulation 9 – mandates thorough initial, administrative, REG-9 and unique-asset reviews – demanding rigorous documentation, timely oversight, and airtight audit trails. Traditional, spreadsheet-based approaches are both labor-intensive and prone to manual oversight, leaving institutions vulnerable to errors, missed deadlines, and regulatory pushback.

Enter BITA REG-9™, an end-to-end automation platform that transforms Regulation 9 compliance from a burdensome chore into a strategic advantage. Built for National Banks and Savings Banks that offer fiduciary services, BITA REG-9 delivers exceptional value to trust companies and other fiduciary service providers seeking a unified, efficient, and scalable solution to manage complex regulatory requirements with confidence and precision. Taking you from a manual burden to automated precision.

BITA REG-9 replaces scattered checklists and ad-hoc calendar reminders with a single, integrated system. Dynamic checklists and diarized reviews means you only have to complete your Initial, Admin, REG-9, and Unique-Asset checklists once. BITA REG-9 then schedules recurring reviews automatically. No more recreating forms – every checklist item is configured to reflect each firm’s business process and investment propositions.

Furthermore, daily rule-based monitoring within BITA REG-9’s engine executes automated portfolio checks each morning. Any exceptions – whether overdue reviews, missing data points, or threshold breaches – are flagged instantly, ensuring critical issues surface before they become regulatory headaches.

Meanwhile, exceptions trigger workflows that route tasks to Admin Officers, Portfolio Managers, or Compliance teams. Automated reminders ensure timely resolution, while the platform’s audit logs record every action for full transparency. Moreover, once identified, an exception can be deferred through an auditable exception management process.

Reporting and governance oversight
Identifying issues is only half the battle – BITA REG-9 drives governance at scale. With instant report generation, as soon as a review concludes, BITA REG-9 assembles a fully formatted Regulation 9 report.

The built-in approval workflows mean that each report traverses a pre-configured approval chain – complete with digital sign-offs – ensuring that each stakeholder signs off before external distribution. Automated document management integration pushes approved reports directly into your document repository, creating an immutable, audit-ready record without manual uploads or risk of misfiling. Throughout the entire process, dashboards keep senior leadership and audit committees apprised of compliance status, exception trends, and remediation timelines.

Holistic portfolio governance
Beyond just Regulation 9, BITA REG-9 provides a 360° view of portfolio health. The system’s risk and performance analysis capability visualizes risk concentrations alongside performance outliers, enabling proactive adjustments before paper losses escalate.

This is supported by pre- and post-Trade compliance checks that enforce investment mandates at every stage.

Conclusion
BITA REG-9 empowers national banks – with equal utility for savings banks and trust companies that provide fiduciary services – to elevate their Regulation 9 compliance from a time-consuming, error-prone exercise into a fully automated, auditable, and scalable process.

By unifying dynamic checklists, daily rule-based monitoring, exception management, and end-to-end reporting in a single platform, BITA REG-9 not only ensures rigorous oversight and governance but also frees your teams to focus on strategic risk management rather than administrative firefighting.

BITA REG-9 offers a clear path to stronger controls, greater efficiency, and regulatory confidence.

Regulation 9: From manual burden to automated precision

Reflection of Canary Wharf Skycrapers

Are you struggling with time-consuming Regulation 9 compliance processes? BITA Risk® offers a cloud-hosted solution that revolutionizes how bank trusts handle regulatory compliance, turning hours of manual work into automated excellence.

Regulation 9—mandating thorough reviews of initial, administrative, and unique-asset positions—demands rigorous documentation, timely oversight, and airtight audit trails. Traditional, spreadsheet-based approaches are both labour-intensive and prone to oversight, leaving institutions vulnerable to errors, missed deadlines, and regulatory pushback. Enter BITA REG-9TM, a purpose-built, end-to-end automation platform developed by BITA Risk that transforms Regulation 9 compliance from a burdensome chore into a strategic advantage.

BITA REG-9 empowers banks and trust companies to elevate their Regulation 9 compliance from a time-consuming, error-prone exercise into a fully automated, auditable, and scalable process. By unifying dynamic checklists, daily rule-based monitoring, exception management, and end-to-end reporting in a single platform, BITA REG-9 not only ensures rigorous oversight and governance but also frees your teams to focus on strategic risk management rather than administrative firefighting. With seamless integrations, board-level dashboards, and rapid implementation timelines, BITA REG-9 offers a clear path to stronger controls, greater efficiency, and regulatory confidence.

Find out more today!

How to avoid FCA’s crackdown on wealth management non-compliance

Wealth Mosaic
Wealth Management

FCA: “We expect you to have implemented the Consumer Duty in full, which requires you to put the needs of your consumers first. This work will have resulted in meaningful changes to your business, service and proposition to further drive good consumer outcomes, which you should be able to demonstrate to us if asked.”

Introduction  
This article is a reaction to the FCA’s recent ‘Dear CEO letter’ which strongly emphasises the need for Wealth Management firms to comply with Consumer Duty regulations. These regulations aim to safeguard the interests of consumers and ensure transparency and fairness in financial dealings. However, the consequences of non-compliance or the ability to demonstrate compliance hang over wealth management firms, casting a shadow over their operations. In this narrative, we explore a potential scenario to underscore the fallout of a wealth management firm being unable to answer one of the FCA’s recent questions, and how BITA Risk®, part of the corfinancial® group, would emerge as the controls needed to keep a firm heading in choppy waters.

The potential scenario
A renowned wealth management firm known for handling high-net-worth portfolios must now ensure compliance with Consumer Duty regulations, maintaining utmost accountability, transparency, and demonstrable controls.

For a long time, it relied on sampled peer reviews of portfolios on a monthly or quarterly basis, with file notes and some centralised spreadsheets. It has had few client complaints and is well-regarded.

The situation worsens as the FCA emphasises Consumer Duty as a “Top Priority”, and adherence would be closely monitored to ensure that firms do not think it is a ‘once and done’ exercise.

In a wealth management data survey, the FCA asks a number of questions, including “Have any client portfolios deviated more than 10% from their stated mandate for more than five consecutive business days in the last 12 months, as of 30 September 2023?” The firm had peer reviews and contented clients, the data is aggregated across the firm and only covers 12 out of 244 business days, so it has little chance of answering the question. Much management time is devoted to sourcing data and evaluating the implications of stating its unavailability… A very difficult and dangerous place to be.

Consequences of non-compliance
The repercussions of non-compliance could be far-reaching. The inability to answer the question raises concerns about a firm’s control and management of information processes and systems. If it cannot answer this, how can it be managing other aspects of Consumer Duty? Where is the ability to demonstrate this to the FCA, when asked? How is the firm avoiding foreseeable harm and ensuring consistent outcomes?

Although this is presented as a hypothetical company position, not knowing is a problem for anyone. A sample of portfolios on a sample of dates cannot represent the knowledge needed.

Risk unwrapped: skipping consumer duty is like playing with financial dynamite – beware of the explosive consequences
Knowledge is control, and the ability to demonstrate mitigation and rectification of issues is crucial. Searching for portfolios with issues is like looking for a needle in a haystack, but it is better to find and understand them before the issue festers and becomes a problem.

BITA Risk: a solution to navigate the regulatory landscape
Amidst the challenges, BITA Risk’s wealth management clients can answer this primary question fast. In fact, most of them have been managing this daily, dealing with issues as they arise and before they can have an impact on outcomes. This cutting-edge risk management solution is designed to help wealth management firms manage the complexities of Consumer Duty regulations. With its sophisticated algorithms, daily monitoring capabilities and management information reporting, BITA Risk provides firms with the tools necessary to ensure compliance.

The platform conducts thorough risk assessments, identifies potential areas of non-compliance, and offers actionable insights to rectify shortcomings promptly. By leveraging BITA Risk, wealth management firms can proactively address regulatory measures, safeguard client interests, and protect their reputation from the debilitating consequences of non-compliance.

Harm in this context refers to deviating from the client’s objectives, typically assessed against the firm’s central investment model or a specified benchmark. BITA Wealth® Monitor, a component of BITA Risk’s software applications suite, plays a crucial role in minimising anticipated harm by consistently and automatically evaluating positions and portfolios, ensuring that risks remain within acceptable limits. Through quantitative risk checks at both portfolio and asset levels, as well as tests on portfolio construction and investment policies, the system alerts users to exceptions, rather than relying on sporadic random samples.

Conclusion
The FCA headlined a number of presentations in Q4 2023 reflecting how few clients were identified as vulnerable. Not knowing that client portfolios deviate by more than 10% from mandate could be the next area of focus.

In an era where Consumer Duty regulations are tightening their grip on the financial industry, wealth management firms cannot afford to ignore these challenges. The chance of repercussions for non-compliance serves as a motivator for firms to adopt comprehensive solutions like those provided by BITA Risk. As the financial landscape evolves, embracing compliance becomes not only a legal obligation but a strategic imperative for sustaining trust, reputation, and long-term success in the competitive world of wealth management.

If you would like to discuss any of the points raised here, please contact us at bitarisk@corfinancialgroup.com or see more information on our solutions here.

The Wealth Mosaic Talks To Daryl Roxburgh of BITA Risk about Better Controls & Management Processes

Wealth Mosaic
Wealth Management

In this series, we interview senior executives from leading wealth management firms, solution providers and WealthTech influencers to learn more about them, their journey, their perspectives on the market, and how they see the future of wealth management.

For this issue of The Wealth Mosaic Talks To (TWMTT), we talked to Daryl Roxburgh, President and Global Head of BITA Risk ®, part of the corfinancial® group and asked him to share his view on why, in today’s market, investment managers and firms need to consider dispersion of returns and evidencing the broader benefit they deliver to their clients in terms of overall value. 

Before we start, could you share a bit more about yourself and your career to date?
I’m head of BITA Risk. I started my career as a private client fund manager, before taking up managerial roles in Credit Suisse in the nineties. I then spent two years at M&G, before I was recruited by Prudential Portfolio Managers as Global Head of IT in 1998. My expertise lies in portfolio construction, analytics and risk solutions for the quantitative, wealth management, and private banking markets.

What are the current issues, generally, that wealth management firms face around control and insight?
Wealth management firms today know that the FCA is likely to become far more prescriptive in its demands; it is looking to see that customers are not being exposed to inappropriately high-risk or complex instruments in the investments that they make while having consistent returns and fair value.

That means that firms must be able to demonstrate a daily understanding of where portfolios are relative to their mandate. To do this effectively, wealth managers need sophisticated and effective controls, and a greater level of management information in place. Having these controls in place will keep them more informed and aware of the level and sources of potential risk in a client’s investment portfolio – foreseeable harms – as well as returns-outcomes.

To efficiently manage a book of client portfolios, managers need an exception-based dashboard which gives them the ability to hone in on any areas that need immediate attention.

Why is this an issue now?
The FCA is constantly discussing the need to prevent consumers from being sold or recommended products and services that are of poor value, and is consistently advocating the need for wealth management firms to shift to an investment model that is built on best practice and evidence based. As a result, wealth managers are introducing more robust monitoring systems to spot issues, evidence that they are treating their customers well, and are firmly focused on delivering on the best possible all-round outcome to their clients.

How can firms best address this issue on a high level?
I think value can be measured in a number of different ways, in terms of meeting the clients’ objectives for risk and return. For example, a fund manager does not need to be constantly turning over a client portfolio to add value. But they do need to be continually assessing whether the portfolio’s components are the right ones and are in line with the defined investment mandate – that means carrying out the right level of oversight and review on a systematic basis. The fund manager’s focus very much needs to be on anticipating foreseeable harm and increasing standards overall as well as performance dispersion.

What would this look like at a granular level?
Firms need to break down the causes of performance dispersion to understand the risks inherent in the portfolio. They also need the means to manage and resolve risk and foreseeable harm-related issues. This implies a governance structure that is effective, non-conflicted, and with appropriate controls in place to steer a course back to the provision of best outcomes and customer value, when and where needed. It also means testing consumer understanding and ensuring they fully understand all aspects of their investment products and services. This can be done only if the portfolio manager clearly understands the customer’s needs, risk profile, and circumstances – including whether they are deemed vulnerable or not, according to the FCA’s definition of vulnerability.

Most firms are already focused on reducing harm and increasing their standards of service, but others are still playing catch up purely because they have a culture where they have, in the past, given their investment managers a lot of freedom with limited control frameworks or structures in place. They ae now obliged to apply something more robust than they have done in the past in terms of risk analysis and controls.

How does this feed into fair value and Consumer Duty?
Providing fair value means the amount paid by customers is reasonable relative to the benefits they realise from their investments. The investment manager must also ensure they deliver ongoing review/advice and do not overtrade, provide clear disclosures on fees and charges, deliver overall value to the customer and, finally, make required changes if and when issues around poor value are identified.

The aim is for wealth managers to have a circular process of defining the investment outcome their client expects, putting controls in to monitor progress against that outcome, and then analysing whether they achieve that outcome.

In this context, outcome management is an ongoing and iterative process; it does not look at the portfolio only at the end of a given year and says it is slightly below the expected return. Rather, an ongoing process that is focused on outcome management is more about monitoring a portfolio against various measures throughout the year to ensure that investment targets are met by the end of a given year.

For those investment managers who choose stocks on a fundamental analysis basis, quantitative methods and metrics, such as risk, will bring additional insight to their process. So I think this is now about having alerts and prompts in place to look at a portfolio such that the investment manager has a comprehensive and informed view of the underlying risks, and is comfortable taking calculated risks because they are aware and informed of when and where intervention might be needed to maintain a focus on consistently providing fair value to their client.

Key takeaways 

  • Quarterly sampling of portfolios for peer reviews is no longer enough.
  • Manual, spreadsheet-driven, Management Information has single points of failure and is labour-intensive, and unlikely to be timely.
  • A framework of metrics is needed to drive consistency of outcomes without rebalancing to model, and even rebalancing throws out outliers that should be monitored.
  • Managers having a view of their own alerts, enables rapid reaction and resolution, rather than passing down monthly reports.
  • Risk management is about a strong investment process, not just regulation.

Responsible Investing – Putting Theory into Practice

Financial data sets

This article follows an assessment of Responsible Returns – Meeting Client Utility, seen here. BITA Risk® part of the corfinancial® Group, considers how to put all the theory around Responsible Investing into practice.

In the last article, we looked at maximising the client utility through using ESG data to aid the investment process through avoiding risks and seeking opportunities, incorporating client preferences in portfolio management, and stewardship. Being able to illustrate this to the client is key, through portfolio centric reports demonstrating the application of these processes to their portfolio. The key to success, is bringing together six sets of data within a single system, to maximise the use of each data set and the value that it can create, while reducing manual processes and re-keying.

  • One or more data vendor services
  • The firm’s investment and RI narratives at issuer level
  • The firm’s voting and active management actions
  • The firm’s screening criteria
  • Client preferences
  • And every portfolio’s positions

This applies, regardless of the firm’s chosen taxonomy and data vendors, and indeed should support multiple ones allowing reporting across TCFD, SDR, SFDR, SDG, SASB and PLSA, as appropriate and required.

BITA Risk’s ESG Manager delivers on the need collate this data, to provide robust, detailed and easy to understand responsible investment analytics at holding and portfolio level.

For the Central Investment Team, it provides model portfolio and research list, on-going monitoring against specified criteria as well as detailed exposure and what-if analysis. Regulatory TCFD reports are on-demand for all portfolios at any date, as are exposure trend reports. Asset narratives can be loaded for use in reporting across client portfolios, as well as disseminating information to investment managers.

ESG risk and opportunity analysis can be reported for any portfolio, including models and recommended lists, and not only be reported on at a point in time, but monitored on a daily basis with exception reporting.

To aid clients, preferences can be recorded to match either to a pre-determined set of screening criteria, or client specific requests. These typically align with the data vendors metrics, enabling both a great depth of granularity, as well as standard definitions of the preferences aligned to the ESG, ethical, product exposure and climate change data. For example, IMs in one of our charity focused investment managers can select from over 400 metrics when aligning client requirements.

Not only are these preferences recorded as structured data that can be shared with order management and reporting systems, but the client portfolios are monitored for conflicts with them daily, along with exception reporting.

It automatically applies the following data sets to the holdings of any client portfolio; one or more ESG and carbon data services, the firm’s own scores and narratives and the firm’s voting and active management actions. Combining this with firm’s central screening criteria and client preferences in on-going monitoring, provides powerful insight, automated checks and controls, as well as valuable reporting.

We are currently working on the collation of data on a firm’s voting and stewardship activities, which will then be applied to a client’s portfolio on the basis of activities relating to assets held during the reporting period, further demonstrating a firm’s capabilities.

BITA Risk’s ESG Manager delivers ESG, Ethical Restriction, and climate data, management and reporting tools to IMs, demonstrating a firm’s Responsible Investment approach as applied to each client portfolio. In this way, we feel the tools to mitigate ESG risks, seek ESG opportunities, personalise the portfolio, and demonstrate the firm’s stewardship role are delivered, helping improve client communication and maximise their utility.

If you would like to discuss any of the points raised here, please contact us at resources@corfinancialgroup.com or see more information on our solution here.

Responsible Returns – Meeting Client Utility

ESG and financial balance

This article follows a high-level assessment of Responsible Investing by Daryl Roxburgh, seen here. In aiming to maximise client utility, BITA Risk® part of the corfinancial® Group, considers three key questions associated with the challenges of implementing Responsible Investment: 

  1. There has been much debate as to whether ESG is good or bad for performance. ESG is a very broad set of disparate metrics and like any other metric for assessing investments, they are useful, but will not be applicable for all sectors all of the time in terms of driving performance – How can they be best used?
  2. The balance required between achieving return and meeting responsible objectives varies significantly across clients, as does personal perception as to what a responsible objective is. From a wealth manager’s perspective, this could become a logistical nightmare, but it does not need to be – How can these preferences be managed?
  3. Many firms have thought long and hard about ESG and have created considerable research and insight. This creates a positive point of differentiation for the fund manager, as long as this is demonstrated to the client – How can this be capitalised upon?

Investors, particularly younger ones, now hold ESG standards to be as important as performance; a recent survey by asset management firm Amundi and the Business Times found that 82% of Gen Z and close to two-thirds of young millennial investors have exposure to Environmental, Social and Governance (ESG) investments. Combined, Gen Z and Millennials account for 43% and 49% of the US and global population, respectively.

This trend is only set to continue, particularly as more wealth transfers to these cohorts.

The adoption of SFDR disclosure regulations in the EU has also helped to move awareness up the agenda. Fund managers are required to disclose how sustainability risks are considered in the investment decision-making process.

The International Institute for Sustainable Development sees the market for ESG-mandated investments reaching U$160 trillion by 2036, rising significantly from U$30 trillion in 2018.

But how can fund managers actually demonstrate that they have woven ESG and climate factors into their research processes and considered them in the same way that they would incorporate things like risk and suitability?

The key, we think, is to support the investment manager and client and make a good outcome more likely by putting in place a robust analytics and tracking system. This should focus on the ESG factors of a portfolio together with traditional risk and fundamental analytics, in the context of the client’s risk and suitability profile and financial objectives.

We think of this in three processes and report sections, which will drive investment returns and meet client objectives, as well is improving client communication and demonstrating the actions of the firm.

 

One: Risks and opportunities:

A firm should determine which ESG factors are considered as risk and opportunity signals – and this will vary by sector. In many cases, these are already embedded in the investment selection process. Their use should be extended into an ongoing process making use of data monitoring and management to provide individual client portfolio reviews and warnings, if an investment’s score has changed or there is a conflict with the client’s mandate. This should equip the investment manager to demonstrate to the client how the firm’s responsible investment process has been applied to risk management and return generation within their portfolio. This also adds the ability to flag any issues and take evasive action as soon as possible – again this comes down to being able to show that the best outcome was sought in good time for the investor.

Indeed, ongoing testing of ESG factors against the client mandate alerts to foreseeable harm that can be mitigated or documented.

Through identifying and managing these return risks and opportunities and reporting a firm’s view of individual investments in the context of the client’s portfolio, the firm demonstrates a true value add and improves the investment narrative for the client.

 

Two: Personal preferences:

The demonstration of the firm’s approach to responsible investment will partly mitigate the challenge of too many client-specific preferences. Where clients require further restrictions, these should be precise and confirmable and link to the metrics that a firm can access. This structured data could then be used to automate portfolio reporting and monitoring against the client preferences and provide checks and balances in the investment process.

ESG reporting should be more than a compilation of figures and measurements. There must also be context around ESG efforts to provide perspective to the client. By recording preferences in this way, the narrative could be focused on the client’s particular interests.  Adhering to an existing ESG framework is important at this stage, as it provides guidance and best practices for how the organisation should structure and convey the report and its data.

By following basic steps around data capture and careful matching of client ESG needs, the investment manager would gain much better insight into the client’s needs and objectives and could measure against those parameters at any time.

 

Three: Stewardship and actions:

Being able to successfully show how ESG data has been incorporated into the investment process, which, together with client preferences are monitored on an on-going basis, could only be positive for the wealth manager’s reputation. The next step is demonstrating the firm’s active investment approach. What has it done to push responsible agendas within the invested companies, how has it voted and been active.

This third process and report section, really underlines the wealth manager’s commitment to responsible investing. By relaying to the client what actions the firm has taken in respect of investments the client has held, would further strengthens the investment narrative.

However, it also has another positive effect; that of influencing positive change within the corporate world. Indeed, the influence of any wealth manager is not to be underestimated and can act as a force for change – companies that do not behave in line with expectations can expect disinvestment and suffer financial loss as well as damage to their reputation. That is no laughing matter! Think Uber – it has fallen out of favour due to numerous accusations of sexual harassment and discrimination within the company, as well as negative attention over the poor treatment of drivers. VMware meanwhile saw its reputation dip, off the back of a lawsuit alleging fraud and financial impropriety and sexual harassment. And Boohoo’s reputational damage has been intertwined with concerns about the company’s business practices and labour conditions at its suppliers.

Ultimately fund managers that want to be successful into the future need to equip themselves with the right data, tools and reports to accurately describe both the firm’s integrated approach and implementation of the client’s parameters when it comes to Responsible Investing. They need to be able to prove investments match that on an ongoing basis. Doing so requires a systematic approach, accurate data and dynamic tracking so as to be able to demonstrate that the Responsible Investing was taken care of as much as the Return on Investment. In doing this, the firm would add to the client utility through Responsible Investing, rather than just meeting regulatory targets.

If you would like to discuss any of the points raised here, please contact us at resources@corfinancialgroup.com or see more information on our solution here.

Our final piece on this topic, Responsible Investing – Putting theory into practice, will reflect on how companies can resolve many of the requirements raised in this article.