© 2014 Grant Thornton Ireland. All rights reserved.
Member of Grant Thornton International Limited (GTIL).
Authorised by C...
© 2014 Grant Thornton Ireland. All rights reserved.
Member of Grant Thornton International Limited (GTIL).
Authorised by C...
© 2014 Grant Thornton Ireland. All rights reserved.
Member of Grant Thornton International Limited (GTIL).
Authorised by C...
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Regulatory Reporting - Key considerations for Fund Managers and Service Providers - Grant Thonrton

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The growth of numerous regulatory initiatives over the last few years has led to a number of new reporting requirements for fund managers globally. These include Form PF, AIFMD and EMIR.

This new Grant Thornton article examines various operational and implementation challenges fund managers and service providers are currently navigating in order to comply with these new reporting requirements.

Published in: Economy & Finance, Business
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Regulatory Reporting - Key considerations for Fund Managers and Service Providers - Grant Thonrton

  1. 1. © 2014 Grant Thornton Ireland. All rights reserved. Member of Grant Thornton International Limited (GTIL). Authorised by Chartered Accountants Ireland (“CAI”) to carry on investment business. Regulatory reporting - key considerations for fund managers and service providers The growth of numerous regulatory initiatives over the last few years has led to a number of new reporting requirements for fund managers globally. These include Form PF, AIFMD and EMIR. Fund managers and service providers are currently attempting to navigate their way through various operational and implementation challenges in order to comply with these new reporting requirements. In Europe the focus has mainly been on the Annex IV reporting required under the AIFMD regulations. This report is filed periodically, according to the AUM of the manager, with most large managers filing on a quarterly basis. The report itself is challenging in that it consists of more than 600 potential data points and the answers required are more rigid and prescriptive than the equivalent Form PF in the United States. Outsourcing to service providers Most fund managers are looking to their administrators to provide them with a regulatory reporting service and remove most of the administrative burden involved in gathering and submitting the data to regulators. This applies not only to AIFMD, some managers are also asking their administrators to report their derivative trades, as required under the new EMIR regulations introduced in February 2014. The EMIR reporting can consist of up to 80 data points for every derivative trade and must be submitted to one of a number of trade repositories on a daily basis. For the AIFMD reporting, administrators are generally working in conjunction with specialised system vendors, a large number of which are now offering an AIFMD reporting solution, in what is becoming a crowded market. The favoured operational model seems to be where the administrator will gather the data required from the various internal and external sources, before completing a sanity check to ensure accuracy and then passing the data to the system vendor to be formatted into the regulatory scheme. Once it is ready for submission, the investment manager will then complete a final review and approval, before the completed report is sent to their national regulator.
  2. 2. © 2014 Grant Thornton Ireland. All rights reserved. Member of Grant Thornton International Limited (GTIL). Authorised by Chartered Accountants Ireland (“CAI”) to carry on investment business. Challenges in data management There are a number of potential difficulties relating to managing this process. For administrators, the challenge will be to capture the correct data from different sources for regulatory submission. This will include their own accounting and valuation data, external data feeds from brokers, counterparties and prime brokers, as well as data from the investment manager themselves. Ideally fund managers will want a straight through process, whereby the data is gathered, reviewed and submitted to regulators with an absence of manager involvement or manual interference. This model is unlikely for a number of reasons. Substantial checks will also have to be built into the regulatory reporting data management process. Administrators will need to reconcile external data to their own records and managers will also need to reconcile the final regulatory report to their own shadow books and records. This means multiple system processes and data outputs will need to be analysed and enhanced, in order to manage the capture and integration of the relevant regulatory data. Administrators will have to choose the correct platforms to allow them to collate all this big data easily. They will need to examine how best to manage dataflow, particularly where the data is being used to populate a number of different regulatory filings (e.g. AIFMD and EMIR, or even Form PF). Cyber security will also be a key issue, as administrators centralise large amounts of confidential and sensitive proprietary hedge fund data on their clients. Administrators will face challenges in enhancing their security controls. Moreover, the U.S. Securities and Exchange Commission has recently indicated that they will examine fund managers security controls in particular to prevent and detect cyberattacks. This focus will clearly have implications for managers and administrators alike. Financial reporting – a natural home for regulatory reporting? In addition, one of the key questions for administrators is where do they put their regulatory reporting offering within their existing operating model? The financial reporting department would seem to be the natural home for these various regulatory reporting services (e.g. AIFMD, FCA, CBI, EMIR etc.). This department already works closely with investment managers and external parties to gather the year end fund data and back up required for them to complete the annual financial statements. Regulated managers are also being required to provide more disclosure in their financial statements, meaning financial reporting departments will be working closely with them to gather and verify this additional required data. The regulators’ view After a slow start the main fund regulators in Europe are now moving forward strongly with implementing the AIFMD reporting requirements. The Financial Conduct Authority (FCA) in the UK is already accepting Annex IV reporting from authorised UK AIFMs. They have been flexible about the format in which it is received, as they are in the process of rolling out a new reporting technology solution later this year. In Ireland the Central Bank of Ireland (CBI) recently confirmed it will begin requiring Annex IV reporting from authorised AIFMs as at June 30 2014. All other in-scope EU and non-EU managers will be required from September 30 2014. The CBI is getting ready to initialise testing with the industry over the summer. For the 28 national EU regulators the key reporting date is December 31 2014. This is the first date for which the Annex IV reporting will be sent by the national regulators to ESMA (early next year).
  3. 3. © 2014 Grant Thornton Ireland. All rights reserved. Member of Grant Thornton International Limited (GTIL). Authorised by Chartered Accountants Ireland (“CAI”) to carry on investment business. The ESMA question? The interesting question then will be – what will ESMA do with all this hedge fund data? The stated aim is to give the regulator a better overview of the industry and assist in identifying any growing asset bubbles or potential systemic risk. ESMA will need to develop a wider analytical framework to assess existing and potential future issues. The results of their analysis will likely impact future regulatory requirements and will be watched closely by the European hedge fund industry. Contacts Ray Kelly Director – Financial Services Audit T +353 (0)1 680 5981 E ray.kelly@ie.gt.com Devin Ford Director – Financial Services Business Consulting T +353 (0)1 436 6518 E devin.ford@ie.gt.com Mike Harris Partner – Cyber Security T +353 (0)1 436 6503 E mike.harris@ie.gt.com @GrantThorntonIE 24-26 City Quay, Dublin 2 Offices in Dublin, Belfast, Cork, Galway, Kildare and Limerick This publication has been prepared only as a guide. No responsibility can be accepted by us for loss occasioned to any person acting or refraining from acting as a result of any material in this publication. GTIL and the member firms are not a worldwide partnership. Services are delivered by the member fi rms. GTIL and its member firms are not agents of, and do not obligate, one another and are not liable for one another’s acts or omissions. Please see www.grantthornton.ie for further details.

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