After yet another challenging year of market volatility, squeezed margins, winning and keeping clients and growing regulatory obligations, it’s time to reflect on some of the opportunities and challenges in the year ahead.
These are some of the key themes and opportunities in the financial services market for 2024 and beyond.
AI AND DATA SERVICES (APIs) USE WILL GROW
Data Services and AI are hot topics in our discussions with global providers for the Australian and New Zealand marketplace.
Outsourced administration to third parties will eclipse insourced solutions for the first time in 2024. It has become too expensive and challenging to secure development resources to keep pace with the evolving opportunities and challenges the market offers.
Wealth platforms must be capable of doing more than managing funds: they must also respond to investors’ desire to manage, spend and invest. This includes sustainability and ESG factors.
Generative AI applications that enable chatbots to be “friendlier” and much more responsive to individual client profiles and behavior will enable deeper experiences such as personalised strategies and portfolios at a much lower cost to serve.
How much of this can be sourced from one provider? Considering, the speed of change we see a greater priority in the capacity for core systems to interface using APIs.
ADMINISTRATION BY EXCEPTION CAN NO LONGER BE THE EXCEPTION
Also described as the “path to 95%” through end-to-end automation of process to achieve the scale to drive efficiencies and reduce costs, exception-based administration has yet to be achieved by many providers.
This is partly due to the ageing infrastructure, within corporates and third-party providers who are struggling to keep pace with the rapidly evolving client and regulatory requirements. How much of these limits the capacity for providers to implement their own automation agenda is unclear., For businesses where there is not a fully informed digital strategy they are already well behind.
WEB 3
Blockchain & digital currencies are disrupting, decentralising, and revolutionising financial markets. They just won’t go away! Token based economics is disrupting financial services worldwide and funds management is no exception.
Over 130 countries are reported to be investigating the use or adoption of central bank digital currencies (CBDCs). Bitcoin seems to have recovered from its near-death experience in 2021 and is experiencing another boom. Even with CBDCs, the crypto marketplace is still in need of governance and regulation for it to be mainstream. Meanwhile, there are several innovations utilising block chain technology, particularly in relation to digital identification, that will emerge in 2024. This will have a lot of application for open banking and funds over time. Have you thought about a Token offering?
SECURITY OF SERVICE FROM TPAs
With some third-party administrators being highly dependent on their core systems from external sources, we are encouraging all providers to undertake an assurance review of these arrangements.
We recommend reviews be conducted in the context of relevant prudential standards (e.g. CPS 230) in Australia and the July 2023 FMA consultation with the industry in relation to a new business continuity and technology systems standard condition in New Zealand.
HOW TFA CAN HELP
At The Fund Alliance, our own priorities for 2024 include:
· Introducing new providers of fund administration services to the New Zealand
marketplace in the first half of 2024. These include API and AI enabled capabilities
and advanced workflow engines
· Bringing in standardised ESG and reporting capabilities that will ease the
complexity and cost of climate related disclosures (CRD)
· Providing access to global FX capabilities for fund managers
Thank you to those of you who have provided feedback and support in 2023 as we launched The Fund Alliance. Best wishes for a safe and happy break.
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