Corporate actions are critical events in financial markets that impact investments, influencing portfolio valuations, client decisions, and operational processes. For wealth managers, ensuring timely and accurate handling of these events is essential to maintaining trust, minimizing risks, and ensuring client satisfaction.

In the UK, the wealth management sector faces strict regulatory oversight to mitigate risks associated with corporate action defaults. the Financial Conduct Authority (FCA) has been actively focusing on operational resilience, consumer duty, and adherence to market practices. Failures in corporate action management, such as delayed or incorrect processing of dividends or rights issues, can lead to financial losses for clients and damage market integrity, resulting in significant penalties for wealth managers. For example, managers may face financial penalties, regulatory investigations, and reputational damage for non-compliance with market timelines. These penalties can also extend to custodians and third-party service providers, emphasizing the importance of clear communication and data accuracy.

Corporate actions: A key to portfolio performance

Corporate actions—such as dividends, mergers, and stock splits—play a significant role in shaping the performance of investment portfolios. Efficiently processing these events ensures that investors receive entitled benefits and helps maintain accurate valuations across portfolios​. In contrast, delays or errors can lead to financial penalties, reputational damage, and even client dissatisfaction​.

The challenges of manual processing

Many firms still rely heavily on manual processes, which are prone to human error and inefficiencies. Handling complex corporate actions—such as voluntary offers or multi-step reorganizations—requires timely communication between multiple stakeholders, increasing operational risks. Manual interventions, especially during high-volume periods, can expose firms to missed deadlines and compliance breaches, affecting the integrity of investment portfolios​. Automation ensures adherence to market deadlines and facilitates accurate reporting, safeguarding firms from penalties and investigations​.

Various research studies highlight the costs and risks associated with failing to optimise corporate actions processing:

• Estimates of losses due to missed or mismanaged corporate actions are hard to come by, but the consensus is that over USD 1 billion is lost every year.
• The risk to firms’ front offices from sub-optimal trading decisions is estimated to be anywhere between USD 1.7 billion– over USD 8 billion per year globally.
• Firms in the industry spend very large sums on measures to prevent processing failure. Available data on the European fund management industry indicates that firms incur total actual costs of USD 70 million to over USD 150 million per year.

Reasons for corporate actions failures

• 98% of firms cite manual processing of corporate actions for operational errors.

• 71% blaming late corporate actions notifications.

Automation as the way forward

Automated systems, like Contemi’s award-winning Wealth Intelligence Corporate Actions, improve the accuracy and timeliness of processing, reducing the reliance on manual interventions. Our solution also ensures compliance by meeting strict regulatory deadlines. Embracing automation not only reduces operational risks but also allows firms to scale efficiently and focus more on value-added services for clients​.

The cost of inaction

Failing to modernize corporate action processes can have significant costs. Inaccurate or delayed processing can lead to missed client entitlements, financial penalties, and strained relationships with clients and regulators. As the volume and complexity of corporate actions increase, firms need to proactively invest in robust systems to stay competitive in an evolving market​.

The U.S. Securities and Exchange Commission (SEC) has recently taken action against firms for widespread failures in maintaining required records and reporting accurate data, which is essential for market oversight and investor protection. One example involves firms fined for failing to properly report transactions and maintain communication records, resulting in a combined $88 million penalty.

The overall message from regulators is clear: firms need to enhance operational processes, including through automation, to meet compliance requirements efficiently and avoid costly enforcement actions

A strategic imperative for growth

In the modern wealth management landscape, effectively managing corporate actions is more than just a back-office function—it is a strategic priority. Firms that integrate automation and streamline their processes position themselves better for growth by improving efficiency, reducing risks, and enhancing client experiences. Treating corporate actions strategically is key to staying agile and competitive in today’s financial environment​.

In summary, automation in corporate action management is no longer a luxury but a necessity for wealth managers. It provides a competitive edge by improving operational efficiency, reducing risks, and enhancing both compliance and client satisfaction. Firms that invest in automation are better equipped to handle the increasing demands of today’s financial markets and deliver superior service to their clients. By understanding and investing in automating corporate action management, wealth managers can ensure seamless operations and foster long-term relationships with clients, supporting sustainable growth in an increasingly complex market.

For more detailed insights, visit https://win.contemi.com/automate-corporate-actions/ to learn how our award-winning Corporate Actions solution can help automate your operations. Or write to us at info@contemi.com for a demo.