Mitigating Risk

Asset Manager Viewpoints on COVID-19: Automate or Get Left Behind

By Corinne Lee | Jul 20, 2020

Asset Manager Viewpoints on COVID-19: Automate or Get Left Behind

It is business as usual (BAU) for firms around the world as they cope with the impact of COVID-19. A test of operational resilience, COVID-19 essentially requires firms to quickly adjust and update existing business continuity and disaster recovery plans to manage the impact that is unique to the pandemic. Added to the complexity of the new normal is that operational readiness for firms in the financial services industry differs between markets based primarily on digital adoption level and infrastructure condition.

To gather more insights on challenges, if any, in transiting to the new normal, DTCC’s Hasan Rauf, Executive Director, Head of Business Development - APAC, recently held a one-on-one discussion with Noor Aini Shaik Awab, Chief Executive Officer, Hong Leong Islamic Asset Management, Malaysia.

HR: I am interested in understanding some of the operational obstacles that buy-side firms in Malaysia are experiencing in the current pandemic. What are your sentiments on how firms are doing in this climate of extreme uncertainty?

AINI: The old saying, “Necessity is the Mother of Invention” continues to remain true as we need a crisis to turn challenges into opportunities. In today’s context, COVID-19 has brought operational challenges in three key areas for asset management, namely system infrastructure preparedness, human capital management and enhanced disaster recovery capabilities including working remotely. That said, opportunities exist now for buy-side firms in Malaysia to address these challenges – to build greater business and operational resiliency in preparation for the next disruptive event.

HR: What are the challenges with system infrastructure?

AINI: Many traditional asset management outfits are still using office-based instead of web-based solutions – particularly for back office operations and product distribution. The thinking is that, working in the office, there is less to worry on security protocols, cyber security threats and there is better control as confidential data are kept on-premise. Despite discussions around workforce revolution, most operations staff are still working on desktops that are not equipped with WIFI and virtual private network features. The mobile workforce challenge is further compounded by poor WIFI and broadband connections outside of the office.

HR: Briefly, what are the issues with human capital management and securing a disaster recovery site?

AINI: Given that COVID-19 is unparalleled in its global reach and gravity – distressing and affecting our personal and professional lives -- clear guidelines and best practices on remote working should be made available to avoid any ambiguity in the absence of face-to-face supervision. Aside from understanding the challenges of working from home specific to the needs of individual employee, greater teamwork and collaboration is required to enable a remote BAU environment.

As the disaster recovery site is essentially a backup site to enable business to resume operations in the event of a failover or an alternative to working from home, the location chosen should be in secure areas built for COVID-19.

HR: Given that the role of technology is heightened during COVID-19, how challenging was the transition to the new normal?

AINI: As a firm, we were able to quickly absorb operational uncertainties and incorporate lessons learned to enable a “plug and play” operating model, supported by a mobile business continuity team. We also looked at outsourcing repetitive operational tasks to unburden our team as they adjusted to the new way of working. E-marketing solutions are now being considered to ensure that our sales and distribution team can continue to canvass for new business and respond to the new needs of our existing clients.

HR: In the transition to remote working, would firms have benefited from outsourcing of middle and back office functions?

AINI: Whether we outsource or insource, the end goal is the same – to implement automaton that will complement or provide value add services to the existing team. If insourcing is preferred, we need to decide which existing systems should be fully automated to enable interoperability with external partners. If a compromise is necessary – in favor of a semi-automated environment, digitization of mission-critical operational functions should be a top priority in the automation roadmap. Another option is to partly outsource non-core functions.

If a full outsourcing model is considered, firms should first evaluate the automation level of the outsourcing firm and if the outsourced services add value to the existing team. In the asset management industry, it is important that real-time updates from services providers are available to help monitor operational activities or in the resolution of issues. Extra care is needed in the selection of service provider as outsourcing does not absolve firms of their regulatory obligations or project management responsibilities.

HR: Financial markets have been volatile as a result of COVID-19 and has reshaped how firms leverage technology to mitigate operational risk. Can you share more insights?

AIINI: Pre-COVID-19, regulators in Malaysia have already been pushing the asset management industry to embark on digitalization and digital transformation as the end goal – to increase the competitiveness of local buy-side firms. The recommendation to adopt straight through processing to replace at least 70% of manual functions across front, middle and back offices will help to improve operational efficiency, provider better services to investors and grow at a fraction of the cost.

Most recently, we have seen that firms with automated processes were able to remotely handle the extreme market volatility fueled by COVID-19 – ensuring that trades are matched, executed and settled on time. Automation is a key component in the change management plan required to build greater resilience and strengthen resource capacity. Firms can no longer procrastinate building a robust, end-to-end automated platform needed for making informed investment decisions, complying with regulatory obligations, optimizing distribution channels and managing operational requirements.

To thrive in the post-pandemic world, it is important for asset managers in Malaysia to continue to invest in digital capabilities. This is the only way forward.

 

 

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