Kim Hau, Senior Proposition Manager for ONESOURCE Indirect Tax, Thomson Reuters explains what emerging technologies actually mean and how will they help today’s organisations to interact with tax regimes around the world.

Tax regimes, legislation, and government systems are evolving. The shift towards real-time interaction will not slow down anytime soon and this is impacting the tax departments of businesses around the world. As emerging trends change, the way government systems are deployed and the technology they use will impact upon tax legislations around the world. Multinational organisations need to keep pace and embrace technology while ensuring they still comply at the speed of business.

If businesses aren’t familiar with the acronyms RPA, AI or even heard the term Blockchain then they need to learn about them, fast. They are no longer phrases from a futuristic text but actual developments in today’s technology and businesses.

1. Robotic Process Automation (RPA) is, essentially, software robots that mimic human tasks across applications in a non-invasive way. If a process can be documented for someone else to follow especially if it’s a potentially error-prone process, high-risk or manually intensive, or done so frequently that it’s just not a good use of time, then it’s a good fit for RPA. Companies will find that some of their tax processes will fit this bill and free up resource to work on more important tasks.

2. Machine Learning and Artificial Intelligence (ML/AI) are two concepts often related and used interchangeably. Machine learning generally describes algorithms used by machines to teach themselves. Artificial Intelligence is used more broadly to describe the ways in which machines can perform tasks intelligently. Simply put it’s about taking a big population of data, learning patterns about that data, and then revising and training algorithms automatically to get better over time. Machine learning doesn’t have to be as sophisticated as self-driving cars. Think about how Amazon, Google, and Facebook use machine learning algorithms to improve recommendations, suggestions, and news feeds. Some of those capabilities are being applied to finance and tax today, particularly in areas where accurately categorising, grouping, or classifying large volumes of data frequently is part of the process. Ingesting data from a dozen different ERP systems and getting it lined up for tax compliance and reporting is an obvious place where it can make a difference to business.

3. Blockchain has been integrating into the business world far sooner than many predicted and as such there is a growing belief that it will radically change the way in which value is exchanged and how items are tracked and traded. Banking, insurance, voting, land registries, real estate, and stock trading are all examples of areas and industries where Blockchain is likely to impact.

While much of the publicity around Bitcoin is related to hackers and the cryptocurrency bubble, much of the real Blockchain activity seen so far is centered on the distributed ledger itself and the ways in which it’s going to disrupt middle men, or intermediaries, by connecting the transacting parties directly. From a positive point of view it is believed that Blockchain will speed up transactions and reduce cost while reducing fraud and increasing transparency.

At its core, Blockchain’s a distributed ledger that records transactions — and many of those transactions will be taxable events which is why it matters to tax. The details around Blockchain are complicated but suffice to say there’s a reason so many governments and industries are actively experimenting with Blockchain projects.

From a tax point of view, it’s likely that Blockchain will impact the tax department via governments and tax authorities pursuing digital strategies around e-government and that technology used by tax to stay compliant will have to adapt to this evolution.

With these developments in mind multinational companies should focus on incorporating technology trends that will assist in managing tax requirements rather than just putting out fires when the next major tax initiative comes along.

HMRC’s Making Tax Digital (MTD) is the perfect opportunity for businesses to be proactive and developing processes that are nimble enough to adjust to change. Tax should focus on what it can control, like the preparedness of systems and the scalability of processes, in order to adapt to the next change. Today, keeping pace with specific rate changes and regulatory modifications is largely a function of tax technology platforms. With HMRC’s October deadline there’s never been a more obvious time to implement solutions that enable and empower tax departments.

.While business process management (BPM) has been around for decades, hype around AI has led many execs to jump into implementing AI rather than bothering to deploy Robotic Process Automation (RPA) systems. In their minds, there’s little point implementing something that will likely be replaced in the near future.

 However, increasingly BPM, RPA and AI are becoming the foundational layer for digital transformation that doesn’t require a costly wholesale rip and replacing a business’ IT systems. Combining existing process management with both RPA and AI when looking to realise value-driven transformation ultimately creates a more efficient and productive outfit. Andrew Tarry, Head of Software Engineering at 6point6, outlines a few examples of why this is the case.

Existing BPM systems

Business process management forms the basis of most workflow orchestration within businesses. From the classic route and queue orientation of service management to everything we would traditionally think of when interacting with businesses that deliver customer service or financial month - or quarter-end close reports. At its most fundamental, BPM forms the basis of how humans interact with predefined process flows of data in order to manage work. It is the system that keeps information flows consistent and provides those managing said information with a ‘heads up’ display on how the overall operation is running.

However, increasingly these systems are implemented and then left to run regardless of whether the businesses’ needs change. When systems are not properly maintained they become brittle and can create issues with interdependencies further down the process line. For example, a change to a retailer’s stock inventory at the warehouse where the system has not properly been maintained could have a significant knock-on effect for their order fulfilment success later down the line; impacting negatively not only on the internal processes but also the customer’s experience of the brand.

RPA’s ability to expose underlying APIs means that routine decisions made by humans can be offloaded to an AI system and then passed directly back to the RPA agent – significantly streamlining processes and thereby reducing costs.

Overcoming the temptation to ignore RPA

RPA tends to be discounted for the more hyped AI during digital transformations because it is often seen as an integration of the last resort for systems that cannot be automated by other means. The general hesitation is that if the system will be replaced by a better AI-based one in the near future, then why invest in RPA in the first place? Replacing a major system tends to be part of a big project that will invariably cost a lot of money, take a long time and involve a significant amount of risk. Further, many organisations have tightly coupled software and business processes, which means they cannot evolve in real time as their business environment does.

However, RPA actually presents the opportunity to implement an ‘automated swivel chair’ integration. For example, a service agent such as a call centre operator could enter details into a CRM solution while simultaneously enabling this data entry to be inputted to the order management system, saving seven minutes per transaction on average. In a high volume call centre, these savings would drop straight to the bottom line.

Further, RPA’s ability to expose underlying APIs means that routine decisions made by humans can be offloaded to an AI system and then passed directly back to the RPA agent – significantly streamlining processes and thereby reducing costs. In insurance for example, in replacement of a claims agent in a call centre, an RPA-backed claims management system could be exposed as an API, presented as a mobile application to customers. The claims information gathered through the API could then be passed to an AI system that would make the claims payment decision on the fly without the need for human interaction. In high-volume, low-value claims environments such as travel insurance claims, this would be cost-effective and would reduce the cost of attrition claims; it would further give back much needed time for claims agents to deal with sensitive and high-value cases.

Far from being a waste of time, through investing in RPA you can achieve the required results in much shorter time spans and could even delay the replacement of the legacy system altogether.

Senior decision leaders must think carefully about how to remove legacy process management systems without negatively impacting on overall productivity and decision making. Far from being a waste of time, through investing in RPA you can achieve the required results in much shorter time spans and could even delay the replacement of the legacy system altogether. A pragmatic architecture, harnessing BPM, RPA and AI together brings to the fore the core benefits of value-driven transformation.

This is why Dean McGlore from V1 believes that in 2019, we’ll see CFOs switch their focus from AI to automation.

In 2019, automation – also known as Robotic Process Automation (RPA) – will move from the shadow of Artificial Intelligence. And rightly so. Like AI, it can relieve teams from mundane and repetitive work to focus on higher-value and strategic activities. But, unlike AI, automation is easier to access, expand. It’s a forecast echoed by experts around the world. Forrester, for example, predicts that the RPA market will reach $1.7bn in 2019 while Advanced has found that 65% of people would be happy to work alongside robotic technology if it meant less manual processes.

Over the next year, we will especially see RPA climb in popularity within the finance function. Teams will use it to automate the data capture and processing of supplier invoices, sales orders and other accounting documents. By automating these manual and usually administrative heavy processes, finance teams can drive unprecedented productivity and efficiency levels as well as benefit from increased visibility into the entire organisation and better data for reporting to the board.

RPA will help with a host of other external factors too. With the General Data Protection Regulation (GDPR) now in place, it will help the finance department (and indeed other areas of the business) get their data in order. RPA is a good starting point for GDPR compliance, as businesses can store, manage and track electronic documents and electronic images of paper-based information in one place and in real-time. This ensures compliance requirements by providing traceability on all documents.

Automation technologies will only be effective if the people using them understand how they work, appreciate their true potential and recognise the value they bring.

And then there is Brexit. Because RPA helps free up time for the finance team, more resources can be devoted to planning for when Britain leaves the EU in March. RPA provides an opportunity for businesses to scale up or down volume to meet demand from outside of the EU, for instance, as well as to assist the development of new products and services for new markets – all of which is essential for business growth. Moreover, with the threat of other countries hiking up tariffs after Brexit, RPA has the potential to replace the need to hire more employees and it can also help keep production costs to a minimum.

Regardless of the reason behind RPA adoption, CFOs will need to make sure that there will be a change in culture among the workforce. Automation technologies will only be effective if the people using them understand how they work, appreciate their true potential and recognise the value they bring. Arguably, investing thousands on pounds on technologies such as RPA won’t be effective if users don’t believe in them. A robust upskilling and training programme is necessary to ensure future digital success.

However, saying that businesses will turn their backs on AI in 2019 was never my intention – Artificial Intelligence will still play a key part of many organisations’ digital transformation plans. What RPA does is allowing businesses to test the water. Planning and testing automation software to see the impact it has on your operations and staff is a great indicator of the benefits that large-scale AI deployment could bring in the future – minus the fear of large-scale failure.

Planning and testing automation software to see the impact it has on your operations and staff is a great indicator of the benefits that large-scale AI deployment could bring in the future – minus the fear of large-scale failure.

In the future, we will see RPA and AI working together to transform the finance function like never before. With a combination of the right technology with AI handling decisions and chatbots managing customer queries, completely unmanned Accounts Payable (AP) for example is perfectly achievable by 2020 as a result of invoice automation.

RPA will be the first step for many and businesses looking to realise the power of automation over the next 12 months should take the following steps:

• Audit your processes and identify which involve low-skills, manual and repetitive tasks, such as many of the core, yet daily finance functions of invoice processes;
• Determine the key technologies that your business needs to become more agile, competitive and productive. RPA and AI have different capabilities, so decisions must be made based on need, rather than hype;
• Understand which new technologies are best placed to modernise or integrate with your organisation’s existing legacy systems;
• Ask yourself what the potential benefits of RPA and AI are to your finance team. Understand employees’ pain points before deciding which digital tools will help;
• Appoint a digital pioneer – someone that will drive positive technology change and that has the backing of your CEO and the rest of the C-Suite;
• Engage with your younger workforce. Typically, they are more digitally savvy and open to change. Find out what technologies they think will make a real difference.

RPA has the potential to change the face of finance for good. And, eventually, it will become ubiquitous among all key processes.

More than two fifths (41%) of finance back-office processes could be automated in the next five years, a new study from global customer services provider Arvato CRM Solutions and management consulting firm A.T Kearney has found.

According to the new report, 41% of finance back-office processes are set to be performed by robots by 2023, with this figure rising to 53% within the next 10 years.

Implementation of Robotic Process Automation (RPA) is set to significantly boost firms’ productivity and efficiency, as bots are 20 times faster than humans with a 10% lower error rate. Subsequently, companies that adopt this technology, could potentially receive an ROI of between 300 and 1,000% over a three-year period.

It’s also predicted that the widespread roll-out of RPA solutions will result in an annual compound market growth of 50%, with the global market set to be worth $5billion by 2020.

New developments

The research also predicts that by 2023, RPA, with the help of cognitive capabilities, will be able to make automated decisions, and by 2028 robots will be able to carry out most back-office processes independently with minimal human intervention.

The new report, named ‘Robotic Process Automation: The impact of RPA on finance back-office processes’, interviewed more than 20 technology partners and players in the field of RPA, gathering together their view on the trends and developments within the sector.

Ben Warren, vice president of Digital Transformation at Arvato CRM, Global BPS, said: “RPA will revolutionize the finance back-office, as the new technology is more accurate, efficient and can work for longer hours, depending on demand.

“This can consequently help drive revenue for a business, streamlining processes and allowing employees to spend more time on higher value tasks.

“But although the benefits of automation can be great, it’s important that firms understand that to successfully utilize the technology they will need to invest.

“A full analysis of end-to-end systems and redesign of existing processes will be initially required, and companies will need to regularly review their processes as technology continues to evolve and develop over the coming decade.”

Dr. Florian Dickgreber, partner at A.T Kearney and co-author of the study, said: “Having transformed manufacturing, bots are now set to change processes in the service sector.

“We expect RPA, the automation of structured business processes, to take over more than half of all back-office processes over the next five to 10 years.”

(Source: Arvato CRM Solutions)

The below market commentary was written by Eric W. Noll, Convergex CEO.

MiFID II, an upcoming piece of legislation from European Union regulators, upends the traditional linkage between trading commissions and investment research in ways both the money management and brokerage industries have yet to fully understand. It will force both the explicit pricing of sell-side research and the defense of those expenses to asset owners by money managers. Moreover, while this is an EU directive, we expect many global asset owners to eventually embrace its core principles of explicit pricing and transparency. By virtue of our market leadership in the Commission Sharing Agreement business through Westminster Research, we stand ready to offer solutions and act as a guide to our money management clients as they face these new challenges.

"Half the money I spend on advertising is wasted; the trouble is I don't know which half." That century-old quote from John Wanamaker, one of America's most famous merchants, is as true today as it was in his time. Every business knows they have to advertise to attract new customers and retain old ones, but even in the Internet Age the advertising game remains – at best – an imprecise science.

There is a close analog living on Wall Street: the value of the sell-side equity analyst. Every Director of Research knows that half of their firm's analysts generate most (if not all) of the aggregate profitability of their team. Sometimes that is because the analyst in question has a history of great calls. Other times, it is because they run the best-attended conference in the sector. In still other instances, it is just "right place, right time" - a solid analyst who happens to cover a sector that has gotten hot of late.

On the investment management side of the business, Wanamaker's adage has similar relevancy when it comes to the research these asset managers purchase from those brokerage firms. Half – if not more – of the content a portfolio manager/analyst receives from the Street is perceived to have little-to-no value. Sometimes that perception is based on the principle that it is simply not value-added work, and sometimes that the research addresses a company or sector that is currently out of favor. That is an important difference of course, even if it does not change the 50/50 calculus.

This is all about to change, and the catalyst comes from the European Union with its Markets in Financial Instrument Directive (commonly called MiFID II). Set to take effect on January 3^rd 2018, it requires investment managers to rethink how they pay for brokerage firm research. No longer will they be able to bundle commission payments for trading execution and research services. After January 3^rd 2018, if they want to purchase brokerage firm research, there are just two options:

1. Pay for it in cash from the earnings of the money management business itself.
2. Set up a Research Payment Account (RPA), to be funded either with an explicit fee charged to the investment firm's clients or with commissions explicitly carved out of trading executions. The RPA will need to be structured strictly in accordance with the new regulations as well as require the asset manager to create a research budget for the year ahead, apply appropriate quality assessments to the research being consumed and report research expenditures to its clients on both an ex-ante and ex-poste basis.

That might all sound innocuous enough, but once you think through the ramifications it becomes clear that big changes are afoot. For example:

• Under either approach, asset managers will want to know exactly what they are paying for and how much it costs. When was the last time you saw a hot-off-the-press research report from a top tier analyst with a price tag printed on the cover? Never. But under MiFID II it is coming. And coming fast.

• If an asset manager chooses to use an RPA, they will have to budget their research expenses (and stick to that budget), actively manage those expenses and provide transparency to the asset owner about what resources they use and how much they cost.

Take a moment and consider the ramifications of these changes. Here are just a few novel questions and issues they raise:

• What is the process to develop a research budget? Do you just look at trailing expenses? Or do you try to forecast future market volatility and anticipated sector correlations, which may provide more investment opportunities but also require the purchase of more resources? And how much do you allocate to macro research (which has been a must-have over the last decade) versus stock-specific work (because correlations now appear to be in secular decline)? Outperforming a benchmark is tough enough; now, you might need to forecast which resources you will require before it is obvious that you will need them.

How does the sell-side develop a service menu to help their clients budget their research spends? Over the decades, brokerage firms have refined a dynamic pricing model that enable them to essentially charge different prices to different customers for the same product, all the while looking to capture every bit of potential revenue.  Now, clients will want to know exactly how much a report or an analyst visit or a conference will cost. It's like going from a family-style buffet restaurant to a dining establishment with a la carte pricing.

• While this is currently an EU-only mandate, how will it change both the creation and consumption of research in the US and elsewhere? Once asset owners see the process start to take hold in Europe, they may well ask their managers in other markets for similar disclosures. MiFID II could well become a global standard for research pricing and disclosure, even if the actual payment mechanisms (commissions in the US, for example) remain unchanged.

While US based asset managers may not necessarily have to comply with MiFID II, it is important to emphasize that we anticipate this directive will ultimately have a global impact as it is now virtually impossible to contain regulation within geographic boundaries. As global managers do business with European asset owners, they may ultimately make a decision to adapt their current procedures to give them the operational capacity to respond to the MiFID II Directives and err on the side of caution.

Now, if you want a playbook for how all this looks, we have it. Our Westminster Research Associates business has been around for 20+ years, helping clients with exactly the sort of challenges they will face with MiFID II. For example:

• Westminster processes hundreds of millions of dollars every year in payments on behalf of clients. Every single bill they pay has an explicit price for the research resources used by our clients. Every research provider you can imagine accepts these payments, from top tier brokerage firms to data providers and bespoke resources that may only have one or two clients.

• The Westminster team also acts as consultants to our base of 700+ clients, helping with everything from uncovering hard-to-find research resources to efficient bill-paying and CSA account reconciliation. In a post-MiFID II world, this allows clients to see the full landscape of resources and better understand what is a "fair" price for the services they receive.

• Westminster is currently enhancing its market-leading systems and processes to dovetail seamlessly with MiFID II's concept of a Research Payment Account. In fact, Westminster has been preparing for the MiFID II Directives since early 2016 and has the ability to work with any software provider to offer a comprehensive RPA solution to its clients. The spirit of both the current CSA paradigm and the RPA approach are sufficiently similar that we believe the solutions offered by Westminster can add considerable value as clients make the transition to the new regulations.

In summary, MiFID II may be an EU regulation but it will almost certainly change broker-provided investment research around the world. We see that as a positive development because with greater transparency will come more accountability and, ultimately, a more efficient research marketplace. Clients will get more of what they want – truly differentiated research that helps them perform – while tracking what that resource costs and explicitly evaluating its cost and benefits.

Will this be an easy transition? Of course not, but we are focused on making all of the necessary changes to our business model to meet the MiFID II requirements that will enable our clients to respond effectively to the new environment. The quote with which we started this note mentioned that half of all advertising is wasted. It could well be that half of all broker research is unwanted. Only time will tell. But with MiFID II on the horizon, we are on the road to finally determining which half is truly valuable. And that is a journey worth taking, both for brokers and for asset managers.

(Source: Convergex)