Technology innovation is re-shaping the market
Interview with Jacques Roux (pictured), Managing Director, Audit, KPMG
How big an opportunity do you think technology innovation is for the BVI’s service provider community, broadly speaking?
The investment funds industry, like most other activities in the financial market space, is information intensive. Data is the lifeblood of alternative investments and, therefore, digitisation is already proving to be a key driver in the next wave of the investment fund industry’s growth. We fully believe that, ultimately, digitisation is going to have a similar effect on the alternative investment industry as the effect of the internet on the media content industry. Here then, lies a significant opportunity for the service provider community in the BVI – those that are able to evolve to meet the needs of the equivalent of the online content provider will thrive whilst those still intent on making deliveries to physical premises will ultimately go the way of Blockbusters.
The challenge for the BVI service provider community is to embrace the opportunity that digitisation presents. To do that they need to understand the demands – and the risks – associated with the significant increase in data volume that digitisation will create at the same time as overcoming the barriers that legacy systems and legacy thinking can create.
The BVI has a thriving hedge fund start-up environment due, primarily, to the approved manager and incubator funds regimes as well as our developing regulatory approach to fintech/crypto. This means we are seeing an influx of new hedge funds from a generation that has grown up solely in a digital environment and, therefore, for whom digitalisation is a base expectation as opposed to a potential development opportunity. This “generation” focusses on profitability, speed and level of service; has far fewer preconceptions than any generation before; and wants to engage with service providers who not only understand digitalisation, but for whom it has become intrinsic.
Those service providers that are able to adapt to meet that base expectation will not only thrive from a competitive stand-point but will also, by leveraging the efficiencies of the digitisation internally as well as externally, significantly enhance their own profitability.
Could you explain a little about KPMG’s smart audit technology – Clara – and how this might benefit your fund clients (and their investors) over the coming years?
KPMG Clara is KPMG’s smart audit platform. It is central to our efforts to increase audit quality and consistency globally. The Clara platform enables the use of our new, more effective audit methodology that continues to develop in alignment with the ever-changing requirements of the global auditing standards whilst also delivering an improved experience to our auditors and our clients.
This platform is currently being deployed across all our audits globally in a phased manner. It will integrate our existing data & analytic capabilities that already use sub-ledger information, bots and other processing tools, with emerging technologies such as predictive & cognitive analysis. Bringing all of this functionality into one place so that it can be easily and consistently deployed across our global audit practice will ensure value-enhancing and highly accurate audit delivery.
It is the technologies within the Clara platform which provide the most value to our clients. Clara will improve both the efficiency and timeliness of our audits whilst further enhancing the quality of our work by substantially increasing the level of testing and coverage attained. For example, these technologies now allow us to analyse the accuracy and completeness of up to 100 per cent of all investment transactions within a portfolio, on an individual investment basis, and at the click of a button. Historically these sorts of transactions would have been tested manually on a sample and/or investment type basis, taking much longer and providing less coverage.
As we have already discussed, our clients are increasingly relying on digitalisation to accelerate their business. This transition is exciting, but complex. KPMG Clara, and the technological solutions which it incorporates, allows us to meet the audit challenges posed by this digital acceleration. It enables us to analyse and assess the ever-expanding volume of data upon which our clients rely, whilst more efficiently delivering audits of only the highest quality. Within the BVI we are current deploying Clara on a number of our audit engagements with full deployment in a phased approach in 2020-2021.
Jennifer Potter-Questelles, the FSC’s Deputy Managing Director, recently commented that “digitalisation is our ticket” when speaking about the importance of embracing innovation. Are you pleased to hear the FSC speak positively on this topic?
Absolutely. At the dawn of each major IT innovation, predictions about its adoption and impact have invariably been proven wrong – they tend to overestimate adoption pace and underestimate the magnitude of the impact. We believe this will hold true with respect to digitalisation and its impact on the alternative investment industry (and indeed broader financial services). Only those jurisdictions that fully embrace the concepts and opportunities around digitalisation will ensure they are ready to thrive into the future. It is, therefore, encouraging to see that our regulator understands the importance of these innovations for the BVI.
Indeed, digitalisation presents a unique opportunity to catapult the BVI ahead of its competitors. It’s great to see the BVI and the FSC demonstrating their support of digitalisation through steps like the amendments to the BVI AML code and the introduction of digital sandboxes for the Crypto and blockchain industries. However, ultimate success can only be achieved with the ongoing and unequivocal support of both Government and the Regulator. Digitalisation is our ticket to enhancing not only the jurisdiction’s standing and competitiveness, but also to ensuring efficient adherence to the ever increasing raft of global regulatory requirements and expectations.
What importance would KPMG attach to electronic verification of customers under amendments to the BVI’s AML code last year?
The modernised AML laws represents a commitment to embracing aspects of digitalisation in the BVI, whilst ensuring that it is supported by a robust and focused regulatory legal framework. In this day and age, we simply have to give our professional services firms the tools they need to offer customers instant access to the jurisdiction. Being able to sign documents, enact transactions and deal with BVI business from smart devices is critical to ensuring that the BVI remains the domicile of choice in international business and finance.
The amendments, which we hope are the first of many, are also timely given that businesses continue to shift towards increased reliance on fintech to conduct operations. Critically, the ability to rely on electronic verification without reducing the level of regulatory oversight performed goes a long way to supporting the high quality international business centre that the BVI operates.
We have already easily concluded that financial services, including alternative investment structures and in particular those with a fintech/crypto focus, is the primary early adopter of digitalisation. The BVI, therefore, needs to keep pace with developments in this space. The amendments to the AML code last year clearly demonstrate the BVI’s intention to be at the forefront of fintech developments. When viewed alongside the jurisdiction’s stated ambition to continue embracing digitalisation, this should ensure that the BVI remains the domicile of choice for progressive alternative investment vehicles that embrace the new technological age.
Managing Director, Audit, KPMG
Jacques Roux leads KPMG’s audit team in the BVI, having joined the firm in 2008, and has specialised in the alternative investment sector for the last 13 years. One of Jacques’ main passions outside of work is supporting the local community and he leads KPMG’s Citizenship programme in the BVI.