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How automation is transforming compliance in wealth and asset management

Asset managers are using emerging technologies in their compliance functions to manage costs, reduce operational risks and gain new insights.

In brief

  • Emerging technologies such as predictive analytics and intelligent automation provide new opportunities for asset managers to transform compliance.
  • Effective automation can deliver huge improvements in time, efficiency, accuracy and value across the investment value chain.
  • Identifying the right tools and use cases in a holistic, strategic way is vital to making the most of automation and optimizing outcomes.

Asset managers’ compliance functions are constantly moving toward the goal of achieving zero client restriction breaches or regulatory breaks. By accomplishing this, they avoid both reputational and financial damage.

However, this is not an easy task. Compliance functions must contend with waves of new regulation and large numbers of investment restrictions and guidelines, as well as operational challenges.

Unlike other operational costs, those associated with compliance tend to scale in line with the business. This is because regulators need to make financial penalties large enough to disincentivize the violation in the first place. For asset managers, this is a unique and ongoing challenge — one that requires a good deal of forward-thinking. And using yesterday’s tools to monitor today’s investment portfolios is costly, time-consuming, risky, and often ineffective.

Why compliance needs to be transformed

The drivers of change are not new: innovative platforms and technologies, compliance reference data governance, and regulatory pressures are all familiar factors. But other elements come into play too, including investor demands for ultra-customized investment management agreements (IMAs), complex investment vehicle types with replication of strategies, separately managed accounts (SMAs), wrap accounts, and derivatives growth agendas with complex calculations. All of these demands contribute to the growing requirement for the automation of investment compliance monitoring.

As if this were not enough to contend with, asset managers often have to deal with a legacy of internal operational challenges. Manual processes, ineffective coordination among siloed business units, and outdated policies all can act as barriers to achieving portfolio transparency.

Asset management firms’ compliance functions, unlike the front office, historically have been late adopters of new technologies. The good news is that a behavioral shift is underway. Asset managers are increasingly looking ahead and addressing their compliance issues by using emerging technologies to automate processes.

Today, compliance automation aims to help firms tackle routine tasks and reduce the operational risks associated with adhering to compliance and reporting requirements. In the long run, it should empower compliance functions to make informed risk choices based on data and provide insights about the compliance risks they face and how they can mitigate and manage those risks.

Harnessing emerging technologies

Firms are now embracing the use of advanced and predictive analytics, artificial intelligence (AI), and cognitive technologies built upon cloud platforms in their quest to improve business operations. Manually intensive tasks with stretched life cycles are now being looked at through the lens of low code and intelligent automation technologies, which include rapid deployment and easy customization. More specifically, there has been rapid adoption of emerging technologies to monitor investment guidelines; asset managers are using natural language processing (NLP) and machine learning (ML) to read IMAs, prospectuses, and statements of additional information (SAIs) and extract guidelines from them. This includes the use of ML models to identify and categorize these as investment compliance rules.

Another area in which we have seen firms harnessing innovative technology is in the use of workflow automation tools to help with end-to-end client onboarding, including an intelligent rules-based self-service orchestration; intelligent client profiling; and connecting various groups within compliance, including guideline monitoring, rule building, trade operations, legal and reference data. Firms have seen cost reductions of 30% to 45% through streamlined client onboarding and exception management workflow solutions.

Operational risk management has also proved to be an area of interest. Historically, compliance has been a backward-looking function, but firms must now learn how to use the data they have (using the automation tools at their disposal) to anticipate potential issues involving exceptions and then identify and correct those issues before they become breaches.

Less cost, greater efficiency

Within the next three to five years, asset managers using sophisticated analytics, data integration, intelligent automation, NLP, AI, and other emerging technologies will not only be able to reduce the cost of compliance processes, but also make them more efficient and accurate. They will be able to simplify processes for investors and, at the same time, lessen the risk of expensive compliance failures.

Using emerging technologies to automate processes, compliance professionals can respond more effectively to changing regulatory and investor demands and focus on higher-value activities, such as deep diving into potential breaches at an earlier stage. Essentially, firms can be more proactive than reactive in managing risk.

With this in mind, the EY organization has been building a number of investment compliance accelerators. SARGE is the latest EY cloud-based AI solution for wealth and asset management firms. It is an ML and NLP-based tool that has been developed to read and extract investment guideline language from governing contracts, map it to current compliance rules and identify uncaptured language that exposes a liability.

At their core, tools such as SARGE can analyze, extract and categorize valuable information, while offering human-in-the-loop workflow capabilities for ongoing ML. The estimated end-to-end time savings using tools such as SARGE can be up to about 75% in the compliance space; its potential to drive improvements across the value chain within wealth and asset management extends beyond compliance, and into client onboarding; fees and billing; environmental, social and governance verifications; institutional requests for proposals (RFPs) and more.

In an industry that is evolving and innovating, with frequent changes to trading systems, regulations and product suites, tools such as SARGE facilitate a platform of continuous risk assessment.

Asking the right questions

There are important questions asset managers need to ask themselves when planning a compliance automation strategy. The answers will differ depending on the company’s existing business model, resources, and skillsets. But at their core, these questions attempt to get clients focused on long-term compliance outcomes weighed against short-term gains — specifically in relation to investments in technology.

These questions include:

  • Which compliance functions are automation candidates? Can these be ranked by value measures (e.g., time savings, capacity augmentations, error resolution, efficiency gains) and complexity measures (e.g., scope, size, variability)?
  • Do we have the right operating model to engage and implement a more analytics-driven compliance function?
  • Do we have the right people to develop and lead a technology-driven approach for compliance?
  • Should we build or buy the capabilities we need?
  • How do we stay up to date in the ways in which regulators, peers, and FinTechs are deploying emerging technologies and solutions so we do not fall behind?

Answering these questions will help immeasurably in defining the next steps firms need to take to make certain their compliance function is technology-driven and constantly evolving.


It has never been more important for asset managers to provide investors with tailored products and services – and to reduce their costs to serve. That is a recipe for unprecedented pressure on compliance functions. Fortunately, emerging technologies offer a host of ways to reduce costs, improve precision and enhance insights. Combining the right tools with a smart approach to implementation holds the key to maximizing the value of automation.