Eric Johnson, President of Global Investment Markets at Donnelley Financial Solutions (DFIN) outlines six key forces driving change for the financial sector in the year ahead.
The financial sector is used to transformation: markets fluctuate, and technology and regulations constantly outpace one another. 2019 is gearing up to be no different – a year defined by change. Here are six key forces that are on our radar to drive change in the year ahead:
1. E-delivery Communications
The two-year notice period for the implementation of the e-delivery rule begins in 2019. Funds need to determine the content of their notices, gather and manage shareholder preferences and put in place the infrastructure and resources required to effectively enact an e-default program in 2021.
2. AI and Blockchain
Firms will likely work with innovation partners to pilot blockchain-enabled improvements on key processes in the near term. These proof-of-concept projects will pave the way for industrywide efficiencies that Bain & Company estimates could save financial industry companies and consumers up to $35 billion.
Artificial intelligence (AI) is already used to improve and streamline processes. For example, the SEC uses it to search for and identify anomalies in filings and detect possibly fraudulent activities.
Machine learning also has applications in middle and back offices. It can be used to streamline data ingestion and sharing, speed up repetitive tasks and assist in the delivery of compliance materials. We should see integration become easier and more seamless as service providers continue to embed AI in their products.
3. SEC Proposed Changes Part 1: Disclosure and Variable Products
The SEC’s proposed disclosure requirements and variable annuity summary prospectus closes on February 15. While the benefit of the changes to investors is clear, linking variable annuity products and their constituent sub-products and sub-funds — while accounting for print, electronic and web disclosure — presents no small challenge. Expect many roundtables to be convened and think tanks hard at work figuring out how to best implement the new rules.
4. Brexit
As service providers continue to build out global filing platforms, they’ll be keeping an eye on the fallout of Brexit, its ripple effect on local and international fund groups and concurrent regulatory shifts including PRIIPs, PRIIPs KID, MiFID II and SEC modernization.
Taken together, these factors will continue to make a compelling case for a common platform that enables data-driven filings across international boundaries — even as they shift under our feet.
5. Enhanced Investor Experience
The SEC has asked the industry to weigh in on the best ways to improve investor experience as it relates to disclosure, and in 2019, the focus will be on technology. Expect to see ADA-compliant correspondence, interactive compliance documents that integrate educational materials and comparative indexes and other features to help investors make better-informed decisions.
6. SEC Proposed Changes Part 2: Proxies and Shareholder Communications
This is another area where we’ll likely see regulators begin to embrace technology, along with changes to proxy voting mechanics, the shareholder proposal process and the role of proxy advisory firms — all with an eye toward eventually encouraging greater competition and innovation.
Bottom Line: 2019 promises to maintain the pace of change set by 2018 — and then some. There are enormous shifts on the horizon, and it’s essential for fund groups to be agile and digitally creative to stay ahead of the curve.
Eric Johnson is the President of the Global Investment Markets business for 
