N° 29 - March - May 2023 SPHERE MAGAZINE
In this interview, Achille Deodato, CEO of Indigita, explains how the increasing complexity of cross-border regulations is having a growing impact on wealth managers. For Mr. Deodato, the industry can no longer ignore what has become a major issue. It is now a matter of developing the necessary know-how and keeping an eye on the related risks.
Cross-border regulation is a key topic for the Swiss financial centre. How has regulation changed in recent years?
In recent years, we have observed three major trends: First, the complexity of cross-border regulations has increased. European regulators in particular have tightened controls for foreign institutions.
Swiss companies must, therefore, acquire additional knowledge.
The second trend is a direct consequence of this stricter regulation. More and more complex cross-border compliance rules have to be implemented. Ten years ago, many institutions still followed a "tick-the-box" approach. Today, that’s no longer good enough. Regulators want to see that the rules are actually followed: What controls are in place, what are the risk indicators and how do financial institutions ensure that employees know and respect the rules?
Finally, the third trend includes greater digitisation and automation. No financial institution, large or small, can rely on manual checks today. The complexity is too high, the pace of change is too fast and the volume of information is too large. Automation and digitisation of cross-border controls is clearly the big topic for the Swiss financial centre today.
No financial institution, large or small, can rely on manual checks today.
Why is it so important for wealth managers to always keep an eye on cross-border regulations?
Wealth managers are exposed to cross-border risks on two fronts. First, they are liable when dealing with clients abroad. Their license is conditional on ensuring cross-border compliance in terms of conduct as well as in terms of the products they recommend.
In addition, wealth managers have an exposure towards custodian banks. Risks therefore exist not only in relation to individual client relationships, but also at the institutional level.
What are current developments in key markets that wealth managers should know about?
The definition of key market can vary depending on the institution. Traditionally, Swiss wealth managers are particularly strongly positioned towards clients from our neighbouring countries, for instance France, Germany, Italy and so on.
In these countries, the rules to protect investors have been tightened, for example in the course of MiFID II. The authorities in these locations are now much stricter towards financial institutions from abroad and in some cases require the application for a local license, such as in Italy or Germany.
Many wealth managers rely on the fact that their clients have signed an advisory agreement subject to Swiss law and that MiFID II therefore does not apply. In practice, however, we have seen that this approach does not necessarily protect them from being sued by clients abroad and being exposed to rulings by foreign courts.
How can Swiss wealth managers minimise their cross-border risks?
To minimise risks, one must first be aware of the risks. This requires the necessary knowledge. Once the risks are known, controls can be installed and measures taken. This is also the case with cross-border risks.
One thing is clear: doing business with clients abroad always entails certain costs. The costs of actively dealing with possible risks are relatively low. But if cross-border risks are ignored, the costs increase very quickly and very steeply.
In practice, this means that Swiss wealth managers must first have up-to-date information on regulation in all countries in which they are legally exposed due to their business. This information can be found in the corresponding Country Manuals. Then, they must install internal processes and automated controls to comply with the rules described in the manuals. And, finally, they must train their employees on these rules.
How does FINMA handle cross-border risks? And what does this mean for independent Swiss wealth managers, who are now also subject to regulation?
FINMA raised awareness of cross-border risks in the Swiss financial sector more than ten years ago. The initial focus was on banks. Over the years, cross-border risks have been a recurring theme in FINMA's annual report and today bank auditors have a dedicated chapter on cross-border in their annual reports.
Swiss wealth managers will follow the same path. Independent self-regulatory bodies will verify that wealth managers have acquired the necessary regulatory knowledge, that they have trained their employees and that they have installed the necessary controls.
How does Indigita as a company deal with these issues?
Indigita focuses on training and the automation of cross-border controls. Our parent company, BRP Bizzozero & Partners, is the market leader in cross-border compliance and we draw on its regulatory expertise.
Indigita uses the information from BRP's Country Manuals to create online trainings on more than 190 different jurisdictions. These trainings last between 30 and 40 minutes and end with an assessment. This allows wealth managers to train and develop their employees in a targeted and highly efficient manner.
In addition, Indigita has developed a range of powerful digital solutions that make it easy for wealth managers to install automated cross-border controls. These solutions can be used as a stand-alone application or fully integrated into wealth managers' existing processes and platforms.
Where do you see the future of Indigita?
Indigita has the potential to become a "Bloomberg" for cross-border topics.
We are part of the BRP Group, which as a whole is moving towards digitisation and international expansion. Indigita plays a key role in this.
I see two main areas of development: The first involves the development of additional tools for cross-border compliance, thanks to which banks and wealth managers can control their cross-border exposure and the associated risks via a single dashboard.
The second focus is on the expansion into new geographical markets, such as the UK or the APAC region.
For both, we are well positioned with our team. And we hope that we will be able to further expand our team in the future with equally committed talents.
About Achille Deodato
Achille Deodato has over 20 years of experience in the banking and consulting industry where he held various management positions in the fields of business development, marketing, governance, audit, special projects, risk management and compliance. Since 2019, he is the CEO of Indigita, a regtech company specialised in cross-border compliance. The company, founded in 2016, is part of BRP Bizzozero & Partners. Previously, he was the former Chief Commercial Officer and Secretary General of a Geneva-based banking group and COO of a digital identity provider. He holds an MBA from the IMD business school and degree in economics from LUISS University of Rome.