Asia’s fund automation: Regulatory pros and cons

The world of fund management has entered a new era.

It’s an era replete with acronyms – API, RPA, ML, DLT, AI – promising to eradicate cumbersome manual legacy systems and processes to usher in a more efficient, automated, and customer-friendly industry.

While some fintechs have spent the past decade successfully helping asset managers accelerate that process by connecting formerly siloed stakeholders, the fund industry has not been able to deploy technology as radically and seamlessly as industries like travel, retail, banking, or entertainment. One reason is that the fund industry has evolved into a complex business, with different ways of working. Another is that individual businesses have yet to deem extensive technological investment necessary to overhaul legacy systems that have been commercially viable.

Progress has been fragmented. Different markets and companies have progressed at different speeds, and this is particularly evident in Asia. Automation has nearly always taken place in isolation, and legacy infrastructure has typically been tweaked rather than overhauled.

Asia – forging ahead?

A report from Calastone suggests the multiple factors behind Asia outperforming their counterparts in the fund industry’s automation progress. Singapore (75%), Thailand (69%), China (58%), and Indonesia (74%) were among those most likely to consider themselves either fully or mostly automated, compared to Western markets like the United Kingdom (41%) or United States (39%).

For starters, asset managers in Asia are less burdened than their Western peers by legacy systems that are expensive and complex to overhaul. There is more room for companies to innovate and deploy nimbly, and for modern systems to leapfrog the competition. 

Additionally, the industry is getting strong support from domestic regulators, for instance in Singapore, Hong Kong, Australia, and Thailand. With Asia regulators keen on exploring innovative new models in financial services, companies in these regulation-friendly markets are focused not just on automating basic “quick-wins” administrative tasks but also transformative developments like distributed ledger technology (DLT) and tokenisation.

Major centres leading by example 

Singapore has established a regulatory sandbox for fintech companies to test new products and services in a controlled environment. The Monetary Authority of Singapore is heavily involved in DLT-related projects and has worked hard to push asset managers to leverage latest technologies to improve investor experiences and open the market up to all investors equally. 

Rival financial centre Hong Kong has been pursuing its own “Fintech 2025” programme to develop a comprehensive tech ecosystem delivering “fair and efficient financial services.” Staying the course with its reputation as the territory’s first digital-only bank, WeLab Bank has taken to step to automate all fund orders, on top of digital banking and wealth advisory services.

Elsewhere, Malaysia’s central bank has set out its own Financial Sector Blueprint charting a path to a digitised financial sector by 2026, while Thailand has launched a national digital ID platform to enable secure and seamless digital transactions.

Forward momentum, lingering challenges 

Asia’s rapidly growing, digitally savvy middle class will see increased demands for more efficient, low-cost, digital end-to-end financial services. There are underlying challenges, however. While the region has made significant progress in automation broadly, the performances of individual markets are disparate – automation rates are considerably lower in emerging markets such as Malaysia, than in markets with highly developed financial sectors like Singapore and Hong Kong.

Strong regulatory oversight is a double-edged sword. Where such is lacking, there is a gap between what is perceived as automation and what is possible. Outside of the powerhouse financial centres, automation is significantly less advanced than what reports suggest. The survey found that Asia continues to lead globally in fax use, suggesting that many asset managers who describe their operations as automated may have a very different idea of automation. It also signals a lingering resistance to change. Many financial institutions prefer using fax for certain communications because of perceived security and reliability of old technology.

Additionally, the fragmented nature of Asia’s regulatory regimes makes it challenging for fund industry stakeholders to operate seamlessly across borders, without a physical presence.

At the regional level, other factors are holding back progress, too.

  • Lack of standardisation. This creates inefficiencies across different financial systems and makes the establishment a regional financial hub difficult.
  • Infrastructure gaps. Some Asian countries have limited technological infrastructure, hindering progress in areas such as automation and digitisation.
  • Talent shortage. A shortage of skilled workers in some areas of the financial sector makes it difficult for companies to innovate and grow. Post-COVID, we have also seen a large outflow of talent.
  • Low financial literacy levels. Limited knowledge of financial services and products is still widespread, restricting demand for services and slowing financial sector growth.
  • Global competition. Asia faces competition from established financial centres like New York and London.

The race is on 

As global prosperity marches inexorably eastwards, competition between Asia’s expanding economies to become a financial services leader is becoming more intense. A strong financial sector, and the significant economic and strategic benefits it brings, is seen as an important goal for many Asian countries.

Despite lingering challenges in developing markets, the race is now on to see which country will be first to open and sign off on the necessary regulatory framework, and which fund manager wants to be first to market.