Making compliance work for you in an era of change

The below article is a session write-up from a panel discussion that took place at FundForum NextGen Distribution in Boston, October 2016. Panellists included:

Neerav Trivedi, Director, KPMG
Matthew Chambers, General Counsel and Chief Compliance Officer, Horizon Investments
Shelley Simms, Senior Vice President, General Counsel and Chief Compliance Officer, FIS Group
Ronan Brennan, CTO, Accudelta

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In this discussion, the panelists examined industry activities and current concerns around compliance. The group looked at platforms, performance reporting, and data collection, with an emphasis on best practices in data management and reporting processes.

Managing the Small Manager

Starting with a look at the scale of firms and their abilities under the new regime, Shelley Simms of the FIS Group noted that when it comes to allocating funds to small management firms, the larger clients would not tend to go direct. With the increased level of due diligence and reporting requirements, it is simply too much work, so there has been a boom in outsourcing to other firms, such as Simms’ FIS Group, for such allocations. These hubs can handle the reporting needs and provide the requisite data for activities related to transparency and compliance. They are able to aggregate the data and provide it in a uniform, overlay format, rolled up for the large clients.

On the backend, they are able to advise and remind the small management firms about regular reporting deadlines and events that require disclosure or additional notification, such as key man provisions (e.g. a PM has left the firm). She advised that smaller managers are not always aware of every nuance in reporting and may lack sufficient sophistication with IT systems to do the tasks in a timely and correct manner. Thus intermediary firms like hers ensure adherence to a compliance reporting calendar, push a high level of data quality and provide a clear view into the custodian. They create a system of checks and balances, which includes reconciling performance figures with precise recalculations.

Data Streams and Reporting Formats

Moving to the subject of performance, Matthew Chambers of Horizon Investments commented on several aspects of reporting. In years past, there were questions about what assets were needed to report, now the models delegate the process largely to technology, with tools such as Folio, Investnet and Adhesion supporting the reporting process. A second major change is the ability to report on assets in a real-time or live basis. It is now possible to query AUM at any time and this is a seismic change in the industry. In spite of such developments, there are still issues with data streams, from the conventional forms of financial analysis to the design of performance sheets and related reporting formats. Although the technology is powerful, it is still a long and sometimes painful process to take live feeds from the sheets and create customized reporting products.

Data Management in a Brave New World

Looking at the current regime of regulatory requirements, Ronan Brennan of Accudelta explained that his firm is a niche service provide to asset managers and they help to generate public-facing data, distribution data and regulatory reporting. With careful thought and structure, it is possible to manage the data flows to meet multiple needs and not reinvent the wheel for each mode of communication. However, this does require a sophisticated and tactical approach to data management and the underlying structures in databases and networks.

Whether they are generating retail fact sheets for posting on the corporate website, or filling in forms for government agencies, the relevant data streams are emanating from all areas of the investment firm. Essential questions he asks at the outset of each project include: Where is the data coming from? Where is it going? And What is it, exactly? Brennan cited the example of Form PF and noted that they built a data lake and were able to feed the form from that collection of data. This approach brings economies of scale to the management and reporting endeavors.

Turning to some of the points that Shelley had made about her firm, Brennan agreed that it is a substantial challenge to collect data from numerous subadvisors. The reporting will inevitably be in different formats and requires cleaning and reconciliation. In Europe there have been significant issues with standardization and he emphasized that we have to become better at sharing data as an industry. However, he also pointed to pioneering forms of collaboration and the fact that new products are being launched all the time to meet the evolving needs of the financial sector.

In the final analysis, the panelists agreed the beyond meeting the needs of regulators, sales teams, and marketing departments within firms, it is critically important to get involved with the public discussion. Each firm can help shape the landscape and engage in the important activity of educating the public and furthering the insights of the industry participants themselves.

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