Newgate Compliance's Traci Pham and Joe French underline how investment managers can streamline their operating models by outsourcing their compliance functions to a specialist provider. 

Asset managers are having to do more with less these days. Investor expectations are higher than ever and dwindling margins and rapidly evolving regulations are making generating returns increasingly difficult.

The onset of the COVID-19 pandemic and consequent stalling of economic activity enabled many asset managers to reflect on and reconfigure their operating models in search of efficiencies.

Outsourcing their compliance function to a specialist third party provider is one solution. It's nothing new, but its popularity continues to rise. Thomson Reuters' 2021 Cost of Compliance survey of the global financial services industry found that over one third (34%) of firms already outsource all or part of their compliance functionality.

The challenge for small to mid-size investment firms in keeping regulatory and compliance functions in-house, is that more skills, experience and knowledge is required than ever before in order to stay on top of the relentless waves of regulation. Recruitment and retention of these specialists and embedding sophisticated systems also pose further challenges.

The bottom line is that for small to medium sized investment managers, outsourcing compliance to the right provider is a cost and resource effective solution to shoring up value and driving down costs.

Benefits of outsourcing your compliance function

  • Increase business efficiency: experienced compliance services providers leverage purpose-built frameworks, policies and procedures designed specifically to keep firms compliant with regulatory obligations.
  • Speed to market: specialist providers can offer funds a quicker, more streamlined route to market owing to their experience of application procedures, subject matter expertise and familiarity with regulators.
  • Time saving:  compliance is traditionally admin heavy, so tapping into external support frees up staff to focus on their core competencies of raising and investing capital and generating returns.
  • Scale quicker: outsourcing enables firms to draw upon the necessary human capital and infrastructure when it suits them, meaning they don't have to spend the time, money and effort on recruiting and training a team and investing in expensive infrastructure.
  • Get specialist support: leveraging a provider's extensive regulatory experience to project manage regulatory changes ensures all bases are covered when it comes to compliance. New regulations and their requirements are often interpreted differently and so working with a provider servicing other similar investment structures offers peace of mind. Outsourcing can also be useful when firms need specialised knowledge in time-sensitive scenarios, like when a new regulation is introduced or when a key person in the in-house team leaves.
  • Access the best systems:  outsourcing enables you to access more sophisticated compliance systems and technology which can meet the demands of more granular reporting requirements. The provider can also suggest and implement automated solutions to what were once manual and time-intensive compliance processes.
  • Cost savings:  outsourcing compliance functions isn't necessarily cheap, but it can prove more efficient because of the provider's economies of scale. It also avoids having to pay for the systems, people and training required when keeping compliance in-house.
  • Reduced internal burden: drawing on the expertise of trained compliance professionals alleviates pressure on in-house teams and removes the necessity of building and retaining a large internal team and maintaining expensive infrastructure.
  • Avoid penalties:  by identifying future regulations and staying on top of deadlines, outsource providers can proactively review, design, prepare, implement and support firms' compliance approaches to ensure they don't fall foul of non-compliance.

Identifying the right compliance services provider

It is important to remember that not all investment managers' compliance needs are the same. A good third-party provider will tailor their service to the specific business needs of the manager to deliver a bespoke solution that evolves alongside the manager.

At Newgate Compliance, we aren't your typical compliance services provider. We form a strategic partnership with our clients to help them proactively navigate the regulatory landscape and meet their objectives.

By leveraging our proprietary online compliance solution, GATEway, we provide clients a safe and secure platform to maintain control and manage their compliance functions from anywhere in the world. From compliance assessments through to corrective action, we offer a complete end-to-end compliance solution for investment managers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.