With just six months until GDPR hits Europe hard, Finance Monthly has heard from Nigel Edwards, SVP of Insurance Europe & Head of UK at EXL Service, on the threat GDPR poses to emerging technologies, fintech, regtech and so forth.
For insurers, the General Data Protection Regulation (GDPR) promises to be a difficult hurdle to overcome without the right strategic approach and expertise. Businesses in the insurance industry are some of the most vulnerable to being caught wrong-footed by the incoming GDPR rules because of the data rich environment they naturally operate in. The widespread use of third party administrators means that data flows can be difficult to control in a way that keeps firms compliant with the new regulation. Another question that is high up on the agenda for industry decision-makers is the effect that GDPR will have on future technology adoption.
In recent years, the insurance sector has undergone an unparalleled degree of technological disruption. Telematics technology, for example, has dramatically changed how insurers price policies by gathering data on individuals’ driving habits and behaviour. The use of social media analytics is making the claims process more straight forward and the use of technologies such as geo-location is creating better conditions for underwriters to evaluate pools of risk. One thing that these technologies have in common is their reliance on large amounts of collected customer data to function effectively. Will these techniques be hamstrung by the demands placed on companies under the GDPR regime?
Assessing the data ecosystem
For the most part, GDPR will not force insurers to curtail technology adoption, so long as precautionary steps are taken to better manage the data inputs and outputs on which new technologies rely. All of the existing InsurTech solutions that are on the market or close to arriving will remain options for brokers and underwriters to incorporate into their strategic spend - but only if the underlying infrastructure is in place to enable the rigorous management of client data.
Perhaps one of the most onerous demands placed on businesses due to GDPR is the so-called ‘right to be forgotten,’ which will grant EU residents the right in some places to request a full removal of their personal details from any company’s systems. For many insurance firms, of which a large proportion will have been trading since the start of the age of digitisation, large caches of over 30 years’ worth of client data have been accumulated. This is data which may not be in a single standardised format and spread across siloes in multiple locations – posing a considerable challenge when it comes to compliance to right to be forgotten guidelines.
Aligning with a long-term strategy
For new technologies to remain viable, steps must be taken to ensure that the core infrastructure upon which data is stored and transferred is responsive to frequent requests for deletion or transfer. This may result in the overhaul of legacy IT systems which are not fit for purpose and a more selective retention of customer information, as opposed to a policy which swallows up large pools of data indiscriminately.
Whilst this may entail some capital outlay, the decision to update legacy systems should be taken in the context of a new stance towards regulatory compliance. The GDPR is just one regulatory hurdle that must be overcome by insurers next year, but it can serve as a starting block for a more agile approach to data handling – especially for firms who have historically neglected the task. In the long term, laying the foundations for new technology adoption will not only facilitate better business agility but also a more intuitive approach when interacting with clients and their data.
Somewhere on every asset manager’s wishlist has been a FinTech solution that fosters a more direct connection to their end-users. After all, bankers have gotten big data and artificial intelligence tools, investment specialists have gotten robo-advisors, and compliance officers are getting plenty of RegTech offerings.
We are pleased to announce that a blockchain-driven product for fund managers has arrived. (A live demo was held in December 2016 on KPMG’s premises in Kirchberg, Luxembourg). The result of a collaboration between Fundsquare, InTech (subsidiary of POST Group) and KPMG Luxembourg, the platform will allow asset managers to sell funds directly to investors, which in turn will dramatically reduce the cost of administration and the time taken to process transactions.
Said Fihri, KPMG Leader on Digital Ledger Technology (Blockchain), explains:
“The platform, which could perhaps be better called an ecosystem, aims to streamline a whole range of fund administration and order-routing tasks by using blockchain to automate several processes in a secure manner. In other words, the messaging that must occur amongst the investor, the asset manager, the custodian bank, and the transfer agent is about to become much simpler. Whereas the time between an investor making a decision and a transfer agent executing it currently takes up to about six days, this new fund distribution product will do it in a couple of hours. And in the not-too-distant future, seconds.”
Naturally, these six days, and the money invested in them, is something that many fund managers and investors are eagerly looking forward to getting back.
Notably, unlike similar products recently launched, this fund platform will ease AML/KYC fund data look-through and MiFID verification by standardising it and allowing the factorisation of such repetitive tasks. These capabilities draw on smart contracts which are considered to be the utmost in cyber-secure transaction technology. This feature should answer one of asset managers’ main compliance bugaboos.
The dawn of an ecosystem
As a market infrastructure, Fundsquare is ideally placed to offer a fund blockchain for investment professionals. Olivier Portenseigne, Managing Director of Fundsquare, described the company’s role in administering the distributed ledger:
“Since blockchain’s original usage with Bitcoin, we have been wondering how we could unlock the technology’s potential for investment funds. We soon realised that it had the potential to revolutionise not only one part of the distribution process, but the entire supply chain—the difficulty, however, lay in turning the talk into action. This is how our small commando team was born. With InTech and KPMG Luxembourg, we were able to take a pragmatic approach to the project, and in doing so, speed up the development process. The live demo today is a real milestone in this process.”
InTech, a Luxembourg-based IT company, has been working on blockchain codes, smart contracts, and user interface. Fabrice Croiseaux, CEO of InTech, explained how the new product would revolutionise the industry:
“By combining our expertise around distributed ledger technologies, Fundsquare’s vision, and KPMG’s deep understanding of the fund market, we have been able to deliver the foundation of a new generation platform in a very short time. It is not only the investor and asset manager that can plug into the system: everyone in the fund distribution supply chain, from custodians, to transfer agents, to asset service providers, can benefit. It really aims to connect the dots, by harmonising a currently fragmented fund distribution process.”
KPMG Luxembourg, for its part, advises on user experience based on our knowledge of the asset management industry. We also wrote the business requirements for the development of the product. If the analogy can be forgiven, we are the glue combining the IT engineers and the order-routing specialists to ensure that the end product is exactly what asset managers want.
Luxembourg’s back-office crown
Naturally, the new product augurs a broader change in Luxembourg’s pool of expertise. Intermediaries like transfer agents have great stores of knowledge and are well placed to be an active part of the industry’s revolution. However, they also have the most at stake when it comes to the brand new world of digitalised fund distribution. We hope that transfer agents will work with us to build a new generation of back office technology.
