Industry experts consider fund administration in Ireland, regulatory changes and market expansion
David Rochford
Managing director and global head of public markets
MUFG Investor Services
Andrea Lennon
Country head for Ireland
Crestbridge
Paddy Walsh
Head of regional coverage for Ireland, North America and the UK
CACEIS Investor Services
How has technology evolved in the Irish Fund Administration market, and what role does it play in enhancing operational efficiency and client services? Are there specific technological trends or innovations that are currently shaping the landscape of fund administration in Ireland?
Andrea Lennon: Technology has rapidly advanced within fund administration, streamlining operations and elevating client service levels on behalf of our asset management clients.
We’ve seen a significant embrace of automation, cloud computing and data warehousing, information security measures and the development of asset-class specific software for particularly complex or regulatorily burdensome tasks.
Specific examples include the adoption of online signing, auto-fill documents and the deployment of investor portals that grant round-the-clock access. The latter in particular helps asset managers to save investor relations departments time, by streamlining administrative requests for information about performance, whilst enabling them to select what information to share with their investors within a portal.
This technological progression extends into the core operational sphere too where sophisticated software solutions now adeptly manage time consuming or intricate calculations, from fund and company accounting reconciliation through to waterfall calculations and keeping on top of custody obligations, among other specialised tasks.
These advancements result in heightened accuracy, efficiency and customised service delivery, fundamentally raising the bar for what it means to be a successful fund administration business.
As a result of all these technological developments, more information than ever is now available in the cloud – and so the emphasis on information security within our industry has surged too, with the aim of safeguarding sensitive financial data against potential threats.
This rigorous approach to data protection requires substantial operational scale – potentially challenging mid-market asset management firms or those who may not have fully scaled yet. Partnering with a fund administrator that prioritises both compliance and security can significantly bolster investor confidence.
Such collaborations offer mid-sized firms the expertise and infrastructure necessary to meet high data protection standards, ensuring their operations align with industry best practices and regulatory expectations. This strategic alignment not only enhances security measures but also strengthens trust among investors, critical for sustaining and growing their investment base.
Our focus has been on harnessing these innovations to deliver tailored, efficient services that address the specific needs of our private equity, debt and real estate clients.
David Rochford: In many ways, the trends we’re seeing in Irish fund administration mirror the broader global market, primarily in automation, digitising the investor experience and the growth of artificial intelligence.
The growth of the Irish fund market, which increased from 7,707 Irish domiciled funds in 2019 to 8,870 as of December 2023, means that fund managers must move away from outdated legacy technology and embrace new platforms providing greater automation.
Funds must improve their ability to process increasing volumes of data, across public and private markets, to understand their investor base and attract new retail clients, who are bringing fresh capital but also have greater expectations for disclosure and transparency. Automation is critical for meeting new reporting requirements in multiple jurisdictions.
Digitising data will improve the client experience and serve as a foundation for expanding the use of artificial intelligence to improve operational efficiency in areas ranging from investment analysis and client onboarding to streamlined payments processing.
What are the key regulatory challenges and opportunities facing fund administrators in Ireland, especially in light of recent changes or updates in European financial regulations?
Paddy Walsh: Obviously regulatory intensity is a major challenge in Europe, where the sheer volume of regulations in nearly every area of the business, along with relatively short timelines to analyse, adapt and comply, have an increasing impact on costs and resources.
Regulators are also aiming to isolate the sector from shocks by proactively strengthening operational resilience via measures such as the Central Bank of Ireland (CBI) Guidance on Operational Resilience (CP140) and Europe’s Digital Operational Resilience Act (DORA).
We are also seeing expectations of greater security and privacy around new technologies such as AI and blockchain, alongside the usual demands for maintaining asset ownership, strong oversight and proper governance.
As the outsourcing trend continues, maintaining a high level of responsibility and control over every aspect is essential. The challenge is to ensure meaningful oversight along with appropriate metrics to properly assess providers’ performance and rigour.
Yet another regulatory challenge is handling the heavy international financial sanctions that need precise identification and reporting that has intensified since 2022.
This all puts demands on our local compliance functions to get up to speed on new requirements and develop new and efficient processes.
Finally, anti-money laundering (AML) risk remains a primary area of concern for the regulatory authorities and we are required to dedicate a significant amount of resources to ensuring that we effectively play our part in maintaining Ireland’s reputation for financial integrity.
Nevertheless, despite the significant administrative burden that regulations put on our industry, it has resulted in a more resilient sector with greater process transparency and better investor protections.
Rochford: There are many new regulatory changes that will impact fund administrators in Ireland. One key area is European Long-Term Investment Funds (ELTIF) 2.0, which is the ability to provide investors with access to long-term investment funds, given the recent move toward increased investment allocations in alternatives.
The challenge for fund administrators will be supporting managers that invest in public and private investments in a regulated European product that can be sold to retail and institutional investors. There is an increased focus from fund sponsors to launch products in this space and they want fund administrators to support them on this journey, not just as an administrator but as an asset servicer.
Lennon: Navigating the regulatory landscape remains a challenge but also presents opportunities for differentiation and value addition, positioning fund administrators as invaluable strategic partners to asset managers looking to raise funds in Europe.
In terms of specific regulation, the advent of ELTIF 2.0 heralds the democratisation of private markets, urging asset managers and administrators to revise operating models to accommodate open-ended structures such that the required liquidity in the fund does not drag on performance. Concurrently, the Capital Markets Union (CMU) initiative and forthcoming Alternative Investment Fund Managers Directive 2 (AIFMD2) regulation underscore the strategic necessity for adaptation, highlighting the importance of integrated financial markets across Europe.
A notable challenge for Ireland lies in developing structures akin to Luxembourg’s RAIF/SCSp, essential for maintaining competitiveness in indirectly regulated product offerings. Meanwhile, the Sustainable Finance Disclosure Regulation (SFDR) and escalating emphasis on ESG considerations demand a nuanced approach to compliance, presenting both hurdles and opportunities for differentiation.
The specific challenge for fund administrators is to keep updated on each piece of regulation, which becomes harder to do with increasing regulatory burdens placed on our clients – and by extension, ourselves.
The divergence of regulation between the EU and UK following Brexit is a further challenge for both asset managers and fund administrators, especially for UK-based clients.
For fund administrators, this means once again that the bar is continually raised – which actually benefits firms like ours who have the resources to ensure continued compliance.
Meanwhile, it becomes more crucial for mid-market asset managers who do not have that same scale to work with a partner who does.
How do broader European trends in fund administration impact the Irish market, and what opportunities or challenges do these trends present for industry players in Ireland?
Rochford: Looking across our European business and the European fund industry as a whole, the continued growth of alternatives and the ability to service these products in Irish fund vehicles to meet both manager and investor needs are key challenges and opportunities for the Irish fund industry.
For example, Luxembourg funds have seen incredible growth in this space during the last number of years.
We will continue to see a trend toward the use of generative AI and the ways in which investors and internal operations can benefit from it. Some initial areas of focus are generative AI chatbot, categorisation service, and data extraction. We are taking a more iterative approach and investing our time and resources in some of the more advanced AI platforms.
Lennon: Broader European trends in fund administration can significantly influence the Irish market, aligning with Ireland’s strengths in managing diverse asset classes and fund structures. So far, these trends have been kind to Ireland in particular, contributing to making the jurisdiction the fastest growing major European domicile, accounting for 19.1 per cent of all European fund assets.
One example of these trends contributing to Ireland’s growth, is the growth of the exchange traded fund (ETF) market. Ireland has established itself as a leading European domicile for exchange traded funds, representing approximately 67 per cent of the total European ETF market. This means European – or global – trends in the growth of ETFs further benefits Ireland and its fund administrators who help launch and administer these funds.
Another example has been the global war for talent, which has been particularly virulent in Europe. Talent shortages in key domiciles like Luxembourg have inadvertently benefitted Ireland, with work being transferred to Irish fund administrators who are capable of handling complex fund structures due to their depth of expertise and knowledge.
This shift not only highlights Ireland’s capacity to absorb and efficiently manage additional workload but also underscores the need for Ireland to invest in skill development and talent acquisition to sustain this growth.
The ability to attract and retain top talent in fund administration and related technological and regulatory fields will be crucial for Ireland to leverage European trends fully and address the challenges they present.
A final example is how Brexit combined with Ireland’s enviable quality of living standards has attracted significant new and different talent pools from across the UK and Europe. As expertise in private equity asset valuation, waterfall calculations and other areas come into the country, it allows Irish firms to offer more complex service solutions and move into middle and front office areas, allowing further value-add for clients and propelling the Irish fund administration market forward to higher value work.
However, Ireland has challenges too, both inside and outside the industry. Within the industry, the war for talent has also affected Ireland – we have not been immune from this.
Maintaining a regulatory framework that is agile enough to adapt to the evolving European landscape while ensuring Ireland remains competitive is key. The increasing emphasis on ESG principles across Europe, for example, demands that Irish fund administrators enhance their capabilities in reporting and managing ESG-focused funds, a domain where Ireland already shows promise.
Outside of the industry and more generally, with more people wanting to live in Ireland comes increased demand on infrastructure and housing.
How have client expectations for fund administration services evolved in recent years, and what steps are industry players taking to meet or exceed
these expectations?
Rochford: Often due to the cost of overseeing a service provider, fund managers want to narrow their focus to a single, trusted administration partner to serve their needs and they want that partner to do more than provide the traditional back and middle-office functions.
Increasingly, clients are asking their administration partners to support front-office functions, including order generation or rebalancing, pre-trade compliance, interbank offered rates (IBOR) services risk and cash flow forecasting and liquidity.
In other instances, administrators are providing services outside the traditional fund administration or asset servicing model, such as banking or payments.
Lennon: The European fund administration landscape is shifting towards more client-centric, data driven, technologically advanced services including automation and a greater share of the value chain, for example, data management services; allowing our clients to focus on their value add whilst they harness our comparative advantages in the administration and data spaces.
Key to this transformation is engaging in meaningful dialogues with clients, a practice that has proven successful for firms like ours, which boast remarkable client satisfaction and retention.
From a technological standpoint, the emphasis is on leveraging tech to provide highly customisable and real-time services, automating routine tasks to focus on strategic client interactions and in using software solutions to ensure continued accuracy and speed wherever there is complexity or regulatory obligation. With regulatory demands increasing, possessing in-depth knowledge of changes and being able to horizon-scan for further regulatory changes is important to our asset management clients. Continuous improvement, driven by client feedback, is central to refining our service delivery. This streamlined approach underscores the evolving dynamics of fund administration in Europe, focusing on technology, regulatory expertise and a strong commitment to client satisfaction.
Given the increasing focus on operational resilience, what measures are fund administrators implementing to enhance their operational robustness and manage potential risks effectively?
Walsh: We view operational resilience as extension of operational risk management, as it enhances existing processes and practices while promoting deeper integration.
It has strengthened our business continuity management methodology and safeguards operational endurance by identifying global dependencies and ensuring those processes are operationally robust.
We have implemented a wide range of measures that are in line with CBI Guidance (CP140) such as identifying critical business services for third parties including clients, investors, the market and regulators.
We then map those dependencies through the whole business process, define impact tolerances for the same parties and then perform tests based on serious but plausible scenarios as required by the guidance. These tests are assessed and documented, enabling us to take appropriate action. The iterative nature of the process is the most important thing for us. This testing and improving is an on-going process to identify where changes to our procedures or even a new critical process are required.
Lennon: Administrators are continuously monitoring the effectiveness of their approach to operational resilience and, where necessary, fortifying their systems against a spectrum of risks, including cyber threats, macro events such as climate disasters, conflicts and operational failures, especially as reliance increases on cloud computing to offer best in class services to asset managers and their investors.
IT security protocols, implementing exhaustive disaster recovery strategies and conducting periodic system stress tests are usual. These measures are designed to ensure not only the robustness of our operations but also our agility in recovery post-disruption.
Interconnections and interdependencies were analysed to identify any critical and important business services serve to enable firms to document and map the necessary people, processes, information, technology, facilities and third-party service providers required to deliver each critical or important business service.
The industry’s approach is multifaceted, encompassing both preventive and reactive strategies to maintain uninterrupted service. Cutting-edge cybersecurity solutions to pre-empt potential breaches, while our disaster recovery plans are crafted to guarantee swift restoration of services, minimising downtime and its associated impacts on clients and their investments.
Moreover, we understand the importance of continuous monitoring, testing, evaluation and adaption of our operational resilience framework. This vigilance enables us to identify vulnerabilities early and adjust our strategies proactively, staying ahead of evolving threats and ensuring we minimise impact and protect our customers, allowing us to quickly restore services in the event of unplanned disruption.
Investing in our personnel’s training and awareness forms another pillar of our resilience strategy. By equipping our team with the knowledge and tools to identify and mitigate risks, we enhance our collective defence against operational and cybersecurity challenges.
This approach not only safeguards our operations but also reinforces the trust our clients place in us, ensuring their assets are managed securely and efficiently, even in the face of unexpected challenges.
Rochford: Fund administrators are working closely with managers and their AIFMs to provide more transparency into how their services are delivered and understand the key risks associated with the delivery of these services. This requires fund administrators to break down each service into its component parts and challenge potential ‘weak’ points to ensure they are resilient if an issue occurs, such as the Covid-19 pandemic. Then administrators must address and improve those ‘weak’ points.
The internal operations teams will work closely with operational risk teams to challenge how a firm delivers services and, when considering changes to an operating model, determine if it will add additional risk to the delivery of those services.
What challenges and opportunities exist in terms of talent acquisition and skills development within the Irish fund administration sector, particularly in areas related to technology and regulatory expertise?
Rochford: One of the greatest challenges we face in the funds and tech industry is creating an inclusive environment where women are fairly represented, have their voices heard and can thrive.
This can be addressed in a variety of ways, especially at the grass roots level, by introducing girls to careers in funds or science, technology, engineering and mathematics (STEM). Our firm addresses this important issue by partnering with Irish Funds on initiatives such as the Financial Literacy TY Programme, where we contribute to educating children on careers in the funds industry.
Lennon: The Irish labour market remains tight, and the unemployment rate is forecast to be 4.8 per cent in 2024. Since the last census in 2022, the population grew to 5.1 million, the highest in 170 years.
As previously mentioned, Ireland continues to attract new talent which brings new skill sets that can be utilised in the economy and the administration sector. Furthermore, there are a number of global tech firms headquartered in Ireland which can help the financial services sector to support the accelerated growth in fintech and regtech solutions.
To that end, the quest for talent, especially in technology and regulatory expertise, is both a challenge and an opportunity. We’re focusing on creating a culture of continuous learning, offering training programmes in cutting-edge technologies and regulatory affairs to our staff. Moreover, we’re actively seeking out talent with diverse skill sets to bring fresh perspectives and innovative solutions to our clients.
Walsh: The need to both develop and attract a diversity of talent to create the conditions for innovation and growth are key challenges facing the Irish fund administration sector. Ensuring regulatory compliance demands experienced and competent compliance officers and as competition between funds service providers intensifies, recruitment becomes increasingly difficult.
The demand for key technological skills are set to escalate exponentially in the fund and asset management sector. Industry players have signalled their intention to increase the amount of these skills in their Irish workforces in the coming 12 to 18 months, according to a new report by Irish Funds.
A multi-faceted approach will need to be taken to grow the technological and regulatory talent in Ireland, including reskilling and upskilling existing employees and attracting new entrants and professions. This will require working closely with employers, education providers and other stakeholders.
This will create exciting opportunities for existing and emerging professionals to work in this thriving industry.
How are Irish fund administrators exploring opportunities for market expansion, both within Europe and globally, and what strategies are being employed to establish international collaborations?
Rochford: Every administrator has its own strategy, but we’ve focused on serving clients in the areas where they do business. Our model, with 17 global locations in or near the world’s largest financial centres, provides highly skilled teams to execute for clients and monitor regulatory requirements. This ‘near-shoring’ strategy enables our firm to support client operations in many global markets.
Lennon: As an industry, we are actively pursuing growth opportunities, capitalising on Ireland’s position in the global and European fund administration industry.
To facilitate global outreach, Irish fund administrators are leveraging the country’s renowned expertise in navigating complex regulatory frameworks and its commitment to technological advancement. These competencies make Ireland an attractive partner for international clients seeking advanced fund administration services.
Furthermore, having multiple offices across Europe and the US enables administrators such as us which offer localised support while maintaining a global perspective, enhancing their appeal to a broader client base. This approach not only aids in navigating new regulatory environments but also in tailoring services to meet the specific needs of diverse client bases.
Moreover, fund administrators are investing in technology to support their international expansion efforts. By adopting cutting-edge financial technologies, they can offer scalable and efficient solutions that cater to the global market’s demands. This technological edge, coupled with regulatory knowledge, positions Ireland as a preferred partner for funds looking to optimise their operations across different jurisdictions.
