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DATA PTECHNOLOGY R IVACY USING AND SOFTWARE IN AIFMD PROGRAMS EU R O PCOMPLIANCE E REPRINTED FROM:

RISK & COMPLIANCE MAGAZINE JAN-MAR 2014 ISSUE JUL-SEP 2015

& & risk compliance RC

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FEATURE

The evolving role of ������� the chief risk officer ���������������������������������

������������������������������������� EXPERT FORUM Managing���������������� your company’s regulatory exposure ������������

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Published by Financier Worldwide Ltd [email protected] riskandcompliance@financierworldwide.com 2014 Financier Worldwide Ltd. All rights reserved. © 2015

ONE-ON-ONE INTERVIEW

O NE- ON- ONE INTERVIEW

USING TECHNOLOGY AND SOFTWARE IN AIFMD COMPLIANCE PROGRAMS Darren Burrows Product Manager Miles Europe T: +44 (0)2890 329 736 E: [email protected]

Darren Burrows is a law graduate, qualified chartered accountant and Member of the Chartered Institute for Securities & Investment. He has over 15 years financial services and fund management experience, including with Big 4 Accountancy firms and with leading depositary banks. His specialist focus is UCITS and AIFMD Fund regulation, specifically as regards investment compliance and risk management. Mr Burrows’ focus with Miles has to be been deliver the industry-leading MoneyWare FundWare solution for integrated investment compliance, regulatory reporting and risk.

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USING TECHNOLOGY AND SOFTWARE IN AIFMD COMPLIANCE...

RC: Could you provide a brief overview of the key risk monitoring and reporting requirements stipulated by the AIFMD?

ONE-ON-ONE INTERVIEW

counterparty risk and operational risk. They must also report to regulators in accordance with the Annex 4 Reporting requirements. The contents and frequency of those reports – quarterly, six-monthly or annual reporting – depend on the assets-under-

Burrows: The AIFMD provisions on risk and

management and levels of leverage.

liquidity management and on investor and regulatory reporting present a significant challenge to managers. This includes the Annex 4 Reporting challenges. AIFMD reporting is just part of the theme of the increased regulatory reporting that managers need to address. Managers increasingly need systems and processes, or outsourced support, that can deal collectively with all

“The AIFMD provisions on risk and liquidity management and on investor and regulatory reporting present a significant challenge to managers.”

of these challenges. The AIFMD provisions contain detailed rules governing the use of leverage, operational requirements including the risk management function and delegation, the role of the depositary,

Darren Burrows, Miles Europe

and the contents and frequency of reports to investors and regulators, including Annex 4 Reporting. Each AIFM must first establish a permanent and independent risk function with the necessary means and authority to fulfil its duties.

RC: For AIFMD Annex 4 Reporting in particular, what are the operational challenges now facing fund managers in meeting the regulatory requirements?

They must also ensure that they have a documented and comprehensive risk management policy. AIFMs

Burrows: Annex 4 Reporting is notable because

must be able to review their risk policy and risk

of the volume of data that needs to be collated

management framework on a regular basis, and

and reported in a single xml data format. For AIFMs

they must be able to measure and manage risk

doing the full reporting, there are 39 pieces of

against quantitative and qualitative internal limits,

AIFM data and 301 pieces of AIF data that must be

including for market risk, credit risk, liquidity risks,

consolidated and reported. This includes AIFM, AIF

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USING TECHNOLOGY AND SOFTWARE IN AIFMD COMPLIANCE...

and shareclass entity data, fund holdings, trades, subscriptions and redemptions data, returns, risk profile, change in NAV, counterparties, financing

ONE-ON-ONE INTERVIEW

RC: To what extent is automated filing software available? What alternative reporting platforms are available?

arrangements and leverage. This data consolidation challenge is manageable on a manual basis for a

Burrows: The most comprehensive solutions

manager reporting for only a few funds. However,

will perform all the required data aggregations

there are a large number of AIFMs who are reporting

and all the required calculations will be performed

quarterly for between 30 and 100 AIFs, which

within the solution itself, with the manager enjoying

requires a comprehensive solution. There are also

easy and transparent one-click XML reporting. In

significant calculation challenges involved for Annex

comparison, there is a wide spectrum of other

4. There are detailed calculations required for AUM,

so-called AIFMD reporting solutions available,

calculated in accordance with Article 3, commitment

including basic xml-converter software that takes

exposure leverage and gross leverage. Detailed

the manager’s data in excel templates and converts

aggregations are also required, for example, based

it to the required reporting format. Data aggregation

on asset sub-types, long and short positions, and

solutions that rely on the manager to do all the

stock exchange Market MIC code.

complex calculations, but provide the framework for consolidation of all of the required data, are

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USING TECHNOLOGY AND SOFTWARE IN AIFMD COMPLIANCE...

ONE-ON-ONE INTERVIEW

also available, as are alternative solutions that

to cover, such as Form PF, Opera, major shareholding

support just one element of Annex 4 Reporting. For

and short selling disclosure reporting?

example, there are solutions that deliver only on the risk numbers but do not actually support the wider reporting requirements.

RC: In your opinion, what are the key aspects of a reporting solution that companies should seek?

RC: What other internal benefits can a fund manager obtain if they pursue a fully automated AIFMD reporting solution? Burrows: AIFMD is just one report – a quarterly, six-monthly or annual report. Where a manager invests in a fully automated solution, they should

Burrows: In terms of cost, there are some large

expect a greater return on their investment,

fees being charged for Annex 4 Reporting and

and benefit from functional capabilities such as

these will come under pressure as reporting being

ongoing daily monitoring of their AUM, investment

comes more commoditised. Equally, subject matter

compliance, leverage and liquidity, integrated Value-

expertise should be a priority. Detailed calculations

at-Risk reporting and stress testing, monitoring

are required for Annex 4. You need to be confident

for UCITS compliance, 1940 Act compliance,

that your provider can guide you from start to finish

comprehensive management reporting, Form PF and

through these calculation challenges, regardless of

OPERA Reporting and global disclosures reporting,

asset class, and can provide you with the required

including for major shareholding rules.

transparency. The scope of the solution is also important. Most importantly, however, companies should be sure they know what they are buying and paying for. Organisations should be asking whether

RC: How long does it take to implement a fully automated AIFMD reporting solution?

their Annex 4 Reporting solution is just an xml converter, requiring the manager to perform all the

Burrows: Typically, the timeframe for a small or

aggregations and calculations, or whether it is a full

medium manager to get set-up should be only one

end to end solution. Can the solution also be used to

to two weeks. Shorter timeframes are achievable

perform all of the ongoing AUM monitoring, leverage,

in cases where existing data integrations with

liquidity and investment compliance monitoring?

administrators and prime brokers allow positions

What other challenges can you expect the solution

data, trade data and subscriptions and redemptions

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USING TECHNOLOGY AND SOFTWARE IN AIFMD COMPLIANCE...

ONE-ON-ONE INTERVIEW

data to be pulled quickly in order to produce Annex

compliance, risk management and regulatory

4 Reports.

reporting. In this context, Annex 4 is not being looked at in isolation, but rather alongside all of the

RC: Many fund managers will have selected their AIFMD reporting provider. Do you see those selections as being long term strategic or short term tactical selections? Burrows: There will be plenty of movement over the next 12 to 24 months. We saw a bit of a

other regulatory reporting challenges such as Form PF reporting, Solvency II reporting, Opera reporting and Disclosures reporting.

RC: Are the AIFMD risk and reporting challenges the same for depositaries as for fund managers? What range of challenges face depositaries?

scramble for managers to get a solution in place for their first AIFMD reporting, but now is the

Burrows: Depositaries are not within scope for

time to reflect and make longer term decisions.

Annex 4 Reporting. Depositaries do, however, have

The process of switching provider can be quick

a range of other risk and reporting obligations under

and painless and deliver immediate cost savings.

the AIFMD provisions, with some gold-plating by

Some managers with just a few AIFs may have

some EU member states. The depositary obligations

submitted manually on the regulators’ portals, but

break down into the following high-level categories:

will now evaluate whether that is a cost-effective

AIF asset safekeeping, cash flow monitoring, and

and sustainable approach going forward. That will

oversight duties including ensuring compliance with

include considering whether they really want a

investment and regulatory restrictions and leverage

fully managed outsourced technology solution. At

limits. The obligations may be different to those of

the other end of the spectrum we are seeing large

AIFM’s, but the challenges of data aggregation and

fund groups commencing a strategic review of their

effective measurement and monitoring of risk are

entire enterprise data management framework with

& similar. RC

a view to achieving efficient, integrated investment

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EDITORIAL PARTNERS

E D I T O R I A L PA RT N E R

w w w. m i l e s s o f t . c o m

Miles Software Miles Software is a trusted partner delivering excellence in technology and business solutions to over 300 leading private banking and financial institutions across 16 countries. specialises in providing wealth, portfolio and asset management solutions. The company has more than 300 financial services clients from single manager hedge funds to largest custodian banks across India, Middle East, APAC and Europe. MoneyWare Fundware solution is a comprehensive front, middle and back-office fund administration platform. The European and US focus is on investment compliance, risk and

KEY CONTACTS

The company’s flagship brand MoneyWare Milan Ganatra Chief Executive Officer Mumbai, India T: +91 22 6651 8459 E: [email protected]

Rosie McKerr Belfast, Ireland T: +44 (0) 2890 329 736 E: [email protected]

regulatory reporting. Fundware provides a readymade solution to support firms to comply with regulations.

Darren Burrows Product Manager London, United Kingdom T: +44 (0) 2890 329 736 E: [email protected]

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