Tech-powered custodian services to support fast-growing UAE funds industry
The funds industry in the UAE is evolving quickly, thanks to regulatory initiatives, burgeoning investor interest and cutting-edge technology. Pratapkumar D, Director – Funds Product, and Jean-Marc Laventure, Executive Director – Investor Sales, both from Standard Chartered, discuss where investors see opportunity in the region, and the crucial role licensed fund service providers and custodians perform in this rapidly growing market.
The UAE, one of the Middle East’s biggest financial markets, witnessed a major regulatory development on 1 April 2024 when the Securities and Commodities Authority (SCA) tightened rules for promoting non-UAE mutual funds to retail investors in the country.1 Another big step was the UAE’s launch of a voluntary defined contribution pension system for expatriates in November 2023.2
These moves signal the UAE’s commitment to support onshore mutual funds, accelerate the growth of the country’s asset management industry, and expand opportunities for investors interested in Middle East funds. These are welcome developments for investors keen to explore ethical and socially responsible product segments in line with global trends in environmental, social and governance (ESG) investing.
1 https://www.simmons-simmons.com/en/publications/cluguef6t0000uaxsj1f4anhr/promotion-of-foreign-funds-to-uae-retail-investors-what-s-next-2 https://www.ey.com/en_gl/tax-alerts/uae-introduces-voluntary-alternative-end-of-service-benefits-sch
With proactive regulatory action aiding the growing interest in innovative sustainability-focused and alternative investments across the region, leading international asset managers are reaching out to licensed fund service providers and custodians for support as they explore various fund structures to meet evolving needs. In turn, custodian banks like Standard Chartered are turning to technology to create solutions that can meet the increased demand for compliance monitoring and performance measurement reports featuring enhanced capabilities, including identifying ESG-specific data points and themes.
Shining a digital light on fund performance
One of the challenges of the digital journey is the sheer volume of data, making it hard to analyse for extracting meaningful patterns and reproducing them in reports. However, solutions like logical data models, can help make sense of mountains of data, leading to valuable outcomes, such as insights on how customers invest, and solutions to fulfill regulatory requirements and improve operational efficiencies.
Another tool that Standard Chartered has developed for the Middle East funds market is a digital transfer agency platform - ViTAL. Operating on DLT/blockchain technology, it enhances the custodial processing of mutual funds to meet evolving regulatory and investor needs. These initiatives are accompanied by support for Anti-Money Laundering (AML), Know Your Customer (KYC) compliance, trailer fee calculations and transaction monitoring services.
On the front end, developing a cohesive digital user interface is crucial for investor engagement. This delivers real-time access to investment portfolios and performance analytics while fostering smoother connections between fund managers and investors via online portals and mobile apps. As a result, investors enjoy better transparency, real-time confirmations and easier access to portfolio information.
These benefits will only strengthen over time, as innovations like robo-advisors – which provide algorithm-driven portfolio management services and investment advice, tailored to the investor’s risk tolerance, investment goals and preferences – gain prominence among retail investors in the Middle East, mirroring trends across Asia.3
3 https://www.channelnewsasia.com/singapore/robo-advisers-retail-investors-fintech-banks-2118381
The innovation journey is unending
In addition to enhancing the user experience and eliminating manual touchpoints, the goal of technology is to encourage innovation and sustainable growth. To that end, Standard Chartered’s technology and operations roadmap includes exploring advanced tech-driven solutions like artificial intelligence, machine learning and predictive analytics models, which will play a key role in risk management and mitigation across different operational segments.
Another area ripe for expansion is feeder funds. To serve a rising demand from such structures, providers need to collect and route investors’ funds into master funds more efficiently. For this to happen, transfer agency, fund administration and custodial roles need to be more integrated, which in turn can facilitate the seamless generation of contract notes and fund cash positions based on investors' subscriptions.
Automating these processes would significantly accelerate timelines between feeder and master funds, while mitigating the risk of human errors and delays. As a result, we can expect to see a more sophisticated landscape for fund structures in the Middle East, with better-optimised operations and risk management.
Aiding a smoother reporting process
As the industry flourishes, regulatory mandates are intensifying in tandem, requiring enhancements on various fronts, including transparency, investor protection and business compliance. Providers like Standard Chartered therefore offer solutions that support investors and businesses in meeting regulatory requirements while maintaining robust systematic controls (including audits) to monitor and manage regulatory mandates.
One key tool is customised reporting, which can assist clients with regulatory filings and meeting compliance monitoring standards. Standard Chartered has also partnered with IHS Markit to assist clients with Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standard (CRS) reporting. Additionally, the bank maintains a schedule of periodic updates for accounting platforms and data management systems to uphold the highest standards of data integrity, confidentiality and compliance with regulatory standards.
Globally, regulators are increasingly emphasising ESG concerns, with mandates for compliance monitoring and performance measurement reports. In response, Standard Chartered includes ESG-related factors in reporting frameworks to enhance transparency and meet clients’ sustainability targets. These cover disclosures including Principal Adverse Impact (PAI) monitoring, Task Force on Climate-Related Financial Disclosures (TCFD) assessments and the EU Sustainable Finance Disclosure Regulation (SFDR) reporting requirements. Along with fulfilling regulatory obligations, these reports empower clients with insights regarding their ESG profiles, potentially controversial investment outlays, carbon intensity and exposure to fossil fuels, and their progress towards net zero targets.
While the Middle East markets are still maturing on this aspect of mandatory reporting, Standard Chartered is well positioned not only to meet the requirements when they emerge in the region but also to play an active role in regulatory development in the Middle East capital markets.
Whether by helping to meet evolving regulatory requirements or streamlining and securing fund transfers to enhance the customer experience, fund service providers and custodians have a key role to play in fostering a more sophisticated landscape for fund structures, optimising operational efficacy and risk management - all in the aid of enabling the UAE’s fund management industry to meet its significant growth potential in coming years.
