A chance for investment managers to look forward?

On 22 April 2020, the Investment Association hosted a webinar on the impact Covid-19 has had on firms’ operational resilience. In the webinar, the panel shared insights into the challenges faced by the investment management industry and how the industry is planning for the future. We set out a short summary of the discussions below.

The panel explained that the industry has largely responded well to the significant strain caused by the UK lockdown. The focus for the investment management industry is now on where investment managers want to be in the future and how they can transition to a new operating model over the medium to long term.

The panel explained that investment managers are considering future opportunities by taking into account consumer and investor behaviour, flexibility, cost effectiveness and their operating models, as well as assessing how the market and the UK regulators’ may expect them to embrace change. In particular, the panel noted that some of the opportunities investment managers are (and should be) considering include:

• Identifying important business services – in line with the UK regulators’ ongoing consultation on operational resilience, the panel noted that firms are continuing to identify their important business services and thinking about how these might have changed, as a result of Covid-19. In line with best practice, firms are learning lessons from the pandemic and considering how their important business services might be adapted to take account of future waves of Covid-19, in order to minimise consumer harm.
• Accelerating to digital – it was noted that firms that had already digitalised their operations have generally been able to adapt more quickly to remote working than firms less reliant on technology. Covid-19 has therefore led firms to accelerate their digitalisation programmes by, for example, moving operations to the Cloud and considering other technologies such as Artificial Intelligence. Some firms have moved away from a reliance on manual processes (wet signatures, printing, hard copies etc.) to more efficient, digitalised processes.
• Working remotely – the panel expressed the view that this will increasingly be a point of focus as firms weigh up their “return to the office” strategy. Firms may re-assess their workforce and location strategies by looking at whether working from home is preferred by their workforce, particularly given the number of collaboration tools that are being used to help staff stay in touch. It was agreed that the rise in flexible working also offers an opportunity for the industry to attract more diverse talent.
• Wider digitisation initiatives – firms are using this opportunity to test new ideas on client relationships. For example, it was noted that firms are learning about consumer and investor behaviour to help identify how they are reacting to digitisation of operations and the extent to which face-to-face interaction may continue to be relied upon in the future.
• Improving relationships with third party suppliers – firms have increased their oversight of third party suppliers, particularly when outsourcing a critical or important function. Notably, firms have increased their interactions and discussions with their third party suppliers, often on an informal basis, in order to work with them through this pandemic by taking a pragmatic and open approach. It was agreed that this practical approach has developed open and honest dialogue and, in many cases, this is improving working relationships, with parties building stronger and more robust governance arrangements.

The panel also reminded firms that it expects that the UK regulators, particularly the Financial Conduct Authority, which has listened and responded pragmatically to the challenges faced by firms during the pandemic, will nevertheless require firms to consider the lessons to be learned from Covid-19. In doing so, firms will need to focus on securing good outcomes for their customers and comply not just with the letter, but also the “spirit” of the regulatory regime to which they are subject.

Overall, the webinar emphasised that:

• the “new reality” offers ample opportunity for investment managers to learn from the pandemic; and
• investment managers should be considering their strategy and operating model going forward to help both the business and the end investor, rather than trying to get back to where they were pre-Covid-19.