Distribution Network Supervision: an overview of the latest developments in the industry
In 2018, Luxembourg CSSF Circular 18/698 provided clarity on oversight expectations, giving fund managers a governance framework. Fast forward a few years, when the regulator’s scrutiny pushed asset managers to take it more seriously and to strengthen oversight functions, dissociated from compliance teams, who remain second line of defense. Fund platforms, acting as global distributors also re-enforced oversight solutions. This has pushed the industry to align on higher standards and to collaborate, accelerating new trends in distribution network oversight.
The scale and frequency of these new oversight processes could not have been supported without strong investment in technology. New technology is not only critical in facilitating processes, but it also brings significant added benefits such as abetter and deeper understanding of the distribution network. These new processes are also bringing significant amounts of data. By consolidating these new data with transactional data, commercial data and data on market insights, we can derive a lot of added value to help us better understand the business to the benefit of fund commercial teams, marketing teams and risk teams and to drive better decision-making by fund boards.
Transparency throughout the entire distribution value chain has always been a primary objective of the fund industry and it has never been so much under the spotlight as it is today. The enforcement of the recent regulation is pushing market players towards even more transparency. Distributors are readying themselves to take up the discussion in ways that will truly benefit the whole industry, upstream and downstream.
The journey is still ongoing with current developments pushing the process even further forward. Artificial Intelligence (AI) is an important component of it. The expectation of the regulators is for ongoing monitoring instead of ad hoc mechanic processes, making AI the obvious choice to turn to for distribution oversight. Whether it is for monitoring media, sanctions or political mandate attributions and then linking these events to the implications for the distribution network and stakeholders, or for identifying patterns for recurrent issues and breaches, AI can be leveraged as a tool to support skilled business experts.
Regulatory constraints have turned into positive outcomes by helping the industry to set high standards and collaborate. Beyond this, they have generated unforeseen benefits by leading to increased transparency and by accelerating the deployment of new technology, including AI. Tools and the data are now available to allow a better understanding of the distribution business for the benefits of the whole value chain, including to drive wiser decision-making and potential cost reductions.
Clearstream, as a leading fund services and platform provider, has been at the forefront of this transformation. Clearstream supports asset managers in developing a better knowledge of distributors as well as in restructuring their distribution network.