COPING WITH COMPLEXITY.
Chris Sims, CTO, Ignis Asset Management speaks to Best Execution about the challenge of coping with multiple channels of regulatory changes while transforming the business and reducing risk.
There are so many pieces of regulation in the market, what are the particular ones that impact your business?
There are a number of regulated areas such as the Alternative Investment Fund Managers Directive (AIFMD), the Fair and Accurate Credit Transactions Act (FACTA), the European Market Infrastructure Regulation (EMIR) and the Retail Distribution Review (RDR). As a result we do not just focus on one thing. We have different projects and it differs depending on the regulation.
What is the impact of the Financial Services Authority’s guidelines on outsourcing?
The FSA is questioning the reasons behind asset managers outsourcing their back office operations. Their main concern is what would happen if the firm suddenly collapses and whether asset managers can take the operations back in-house or instantaneously switch to another provider.
What were the drivers behind your outsourcing arrangement with HSBC?
In 2011, we decided to lift out and transfer our back office operations to HSBC. By the end of May 2012, we moved around 150 staff from Ignis to a new HSBC administrative operation in Glasgow. We looked at the resources we had and the gaps we needed to fill and chose this arrangement. There is no one size fits all solution though. In terms of documentation, we did a considerable amount of due diligence and governance. We also put in additional details as to what level of information should stay in-house as well as contingency planning if they go bang in an instant. We have documented everything for the FSA.
What are the benefits?
According to the FSA, the default response from asset managers is they outsource their operations to save money. This was not the case with us. We did not look at the HSBC outsourcing arrangement as a cost effective exercise but as a transformational activity that enables us to cut operational risk. It also allowed us to gain access to technology and infrastructure that we would have had to build ourselves. It gives us a scaleable industrial strength platform that is regularly maintained, upgraded and is able to handle new additional instruments.
What are some of the challenges?
The HSBC outsourcing deal required internal work to get the systems into a fit state so they could be migrated onto their platforms. Part of the challenge is to make sure that you do the in-house development. Another from a technology point of view is the aggregation of data and reporting. One of the problems is that some of the disclosures under the new regulations are straightforward while others such as the EU’s rules on short selling and certain aspects of credit default swaps are more of a curve ball. It requires a level of disclosure unlike anything I have ever seen in the past.
The good thing about the HSBC deal is that it provides us with better quality of data and enables us to dig down to the lower levels to satisfy anything from a regulatory point of view.
Do you think pension funds will stop trading OTC derivatives if it becomes too expensive?
I think it will come down to cost, if you talk to traders and middle managers, the focus is on the infrastructure that will be required to trade derivatives with 30 to 40 separate counterparties and the collateral requirements.
What are you focusing on in the front office?
We are a multi-asset class fund management group and the goal is to improve the systems in the front office for the end user. We have three OMS/EMS systems and we want to ensure that they are better integrated so that the data can flow between them.
Overall what do you see as the biggest challenges from a technological point of view?
It is trying to keep everyone happy at the same time and to keep abreast of the different regulatory requirements and developments. Our in-house IT function has around 60 people which include contractors. It is temporarily higher than usual because of the demands. In many ways it is like being a juggler in that you have to keep all the plates spinning at once.[Biography] Chris Sims is Chief Technology Officer for Ignis Asset Management. Prior to joining Ignis in July 2011 he spent 13 years at Gartmore Investment Management where he was Head of Investment Operations. He formerly served as development manager at Baring Asset Management and started his financial career as a senior analyst programmer at Nationwide Building Society, having spent a couple of years as a scientific officer at RAF Strike Command. ©BEST EXECUTION