Regulatory compliance is the most critical operational challenge faced by central administration and service providers in Luxembourg, according to the latest survey conducted by the L3A Operations Committee, followed by talent acquisition and retention.
The survey conducted at the end of last year, which elicited 27 responses from 21 L3A member companies, up from 12 for the previous edition, reflected a shift in priorities from 2023, when respondents cited accelerating client onboarding and cash account opening ahead of outsourcing and recruitment. Survey respondents notably highlight a new focus on the increased complexity of client demands.
The full list of operational challenges raised by member companies is as follows:
Regulatory Compliance
Companies consistently mentioned regulatory and compliance challenges, including evolving requirements, data protection and the EU's General Data Protection Regulation, AML/KYC issues, and issues raised by CSSF requirements as increasing complexity and cost.
Talent Acquisition and Retention,
including challenges in recruiting and retaining qualified staff, particularly in specialized areas such as compliance, AML/KYC and technology, with critical factors including competitive salaries and market attractiveness.
Technology Integration and Digital Transformation
These challenges include the need for systems integration, legacy system migration, automation, digital ledger technology and AI implementation, along with the need to update technology quickly due to compliance requirements.
Operational Efficiency and Automation
This area encompasses the need for operational streamlining, efficient automation, and alignment with compliance while maintaining a balance with client expectations, specifically in processes such as onboarding, transaction processing and reporting.
Cost Pressures
Many companies mentioned cost constraints and the need for cost-effective solutions across their services, especially in managing increased regulatory and technology requirements.
Increased Complexity of Client Expectations
These were related to demands for customization while maintaining service quality, and meeting expectations amid cost pressure as well as regulatory requirements.
Client Demand and Customisation
Along with issues relating to legacy systems, these challenges reflect the balancing act between adapting to client requirements and managing outdated infrastructure.
• Data Protection and Cyber-Security
This area was mentioned by relatively few L3A members but remains critical, especially with GDPR compliance requirements and growing cyber-threats.
The survey results indicate that as the alternative fund services industry heads into 2025, the increasing burden of regulation, ranging from data protection requirements to measures to curb financial crime, has become the biggest challenge for L3A members. It is closely followed by the perennial issue of how to attract and retain the skilled staff sought by the sector as it expands – and faces up to the needs of more demanding clients.
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