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Double-edged sword of regulatory oversight for fund automation in Asia

Justin Christopher
Justin Christopher  • 5 min read
Double-edged sword of regulatory oversight for fund automation in Asia
While the region has made significant progress in automation broadly, the performances of individual markets are disparate. Photo: Unsplash
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The world of fund management has entered a new era. It is an era replete with acronyms — RPA (robotic process automation), ML (machine learning), DLT (distributed ledger technology) and AI (artificial intelligence) — promising to eradicate cumbersome manual legacy systems and processes to usher in a more efficient, automated and customer-friendly industry.

While some fintech firms have spent the past decade successfully helping asset managers to accelerate that process by connecting formerly siloed stakeholders, the fund industry has not been able to deploy technology as radically and seamlessly as industries like travel, retail, banking or entertainment. One reason is that the fund industry has evolved into a complex business with different working methods. Another is that individual businesses have yet to deem extensive technological investment necessary to overhaul commercially viable legacy systems.

Progress has been fragmented too. Different markets and companies have progressed at different speeds, and this is particularly evident in Asia. Automation has nearly always occurred in isolation, and legacy infrastructure has typically been tweaked rather than overhauled.

Asia — forging ahead?

A report from Calastone suggests multiple factors are behind Asia outperforming its counterparts in the fund industry’s automation progress. Singapore (75%), Thailand (69%), China (58%) and Indonesia (74%) were among those most likely to consider themselves either fully or mostly automated, compared to Western markets like the UK (41%) or the US (39%).

For starters, asset managers in Asia are less burdened than their Western peers by legacy systems that are expensive and complex to overhaul. There is more room for companies to innovate and deploy nimbly and modern systems to leapfrog the competition.

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Additionally, the industry is getting strong support from domestic regulators, such as in Singapore, Hong Kong, Australia and Thailand. With Asian regulators keen on exploring innovative new models in financial services, companies in these regulation-friendly markets are focused not just on automating basic “quick-wins” administrative tasks but also on transformative developments like distributed ledger technology (DLT) and tokenisation.

Major centres leading by example

Singapore has established a regulatory sandbox for fintech companies to test new products and services in a controlled environment. The Monetary Authority of Singapore is heavily involved in DLT-related projects and has worked hard to push asset managers to leverage the latest technologies to improve investor experiences and open the market up to all investors equally.

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Meanwhile, rival financial centre Hong Kong has pursued its Fintech 2025 programme to develop a comprehensive tech ecosystem delivering “fair and efficient financial services”. Staying the course with its reputation as the territory’s first digital-only bank, WeLab Bank has taken steps to automate all fund orders on top of digital banking and wealth advisory services.

Elsewhere, Malaysia’s central bank has set out its own Financial Sector Blueprint, charting a path to a digitised financial sector by 2026, while Thailand has launched a national digital ID platform to enable secure and seamless digital transactions.

Forward momentum, lingering challenges

Asia’s rapidly growing, digitally-savvy middle class will see increased demands for more efficient, low-cost, digital end-to-end financial services. There are underlying challenges, however. While the region has made significant progress in automation broadly, the performances of individual markets are disparate — automation rates are considerably lower in emerging markets, such as Malaysia, than in markets with highly-developed financial sectors, like Singapore and Hong Kong.

Strong regulatory oversight is a double-edged sword. Where such is lacking, there is a gap between what is perceived as automation and what is possible.

Outside the powerhouse financial centres, automation is significantly less advanced than reports suggest. The survey found that Asia continues to lead globally in fax use, suggesting that many asset managers who describe their operations as automated may have a very different idea of automation. It also signals a lingering resistance to change. Many financial institutions prefer using fax for certain communications because of old technology’s perceived security and reliability.

Additionally, the fragmented nature of Asia’s regulatory regimes makes it challenging for fund industry stakeholders to operate seamlessly across borders without a physical presence.

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At the regional level, other factors are holding back progress too. These include:

  • Lack of standardisation creates inefficiencies across different financial systems and makes establishing a regional financial hub difficult.
  • Infrastructure gaps. Some Asian countries have limited technological infrastructure, hindering progress in automation and digitisation.
  • Talent shortage in some areas of the financial sector makes it difficult for companies to innovate and grow. Post-Covid, we have also seen a large outflow of talent.
  • Low financial literacy levels. Limited knowledge of financial services and products is still widespread, restricting service demand and slowing financial sector growth.
  • Global competition. Asia faces competition from established financial centres like New York and London.

The race is on

As global prosperity marches inexorably eastwards, competition between Asia’s expanding economies to become a financial services leader becomes more intense. A strong financial sector and its significant economic and strategic benefits are important goals for many Asian countries.

Despite lingering challenges in developing markets, the race is now on to see which country will be first to open and sign off on the necessary regulatory framework and which fund manager wants to be first to market.

Justin Christopher is the managing director and head of Asia of Calastone

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