Alignment needed in firms' internal infrastructure to deal with regulatory reporting

Operational Risk
20 Jun, 2014

It is essential managers align their internal infrastructure to ensure consistency across their regulatory reports in the US and EU.

This comes as AIFMs are preparing their Annex IV reports as required under the Alternative Investment Fund Managers Directive (AIFMD). The go-live date for Annex IV submissions is the first whole quarter after firms receive regulatory authorisation to become an AIFM or when a manager of a non-EU fund starts to market under the national private placement regimes. A firm that submits their Variation of Permission (VOP) application with national regulators in June 2014 will therefore be required to provide Annex IV no later than October 2014, for example.

“It is essential managers align their internal infrastructure when compiling these regulatory reports, be it Annex IV, or Form PF with the Securities and Exchange Commission (SEC) or Form CPO-PQR with the Commodity Futures Trading Commission (CFTC). It is so important managers supply data in Annex IV that is consistent with other reports or due diligence questionnaires and offering memoranda,” said Gary Kaminsky, managing director for compliance and regulatory at ConceptOne, speaking at a PricewaterhouseCoopers' seminar on AIFMD reporting requirements in London.

A survey of 50 global fund managers by BNY Mellon in conjunction with FTI Consulting in January 2014 found 37% of firms to be unclear as to how they would address the regulatory reporting requirements outlined in Annex IV. Most experts believe regulators such as the UK’s Financial Conduct Authority (FCA)will question managers if Annex IV reports are noticeably error-strewn or where little effort has been put into providing accurate, timely information. However, it is likely the FCA will be more tolerant of honest mistakes or misinterpretations of data fields.

While some firms are internalising Form PF, it was advised that managers automate the process. “Managers taking advantage of national private placement regimes will need to supply each regulator in the jurisdiction they are marketing to with an Annex IV. This could be a number of reports to different regulators. It is essential to automate the process to minimise the hassle,” said Grant Lee, director at PricewaterhouseCoopers.

Others advised managers prepare thoroughly for their reporting obligations. “Firms need to take Annex IV reporting very seriously. We, for example, have done two dry runs for Annex IV in order to identify any potential shortcomings,” said Friederike Werner, director for product development for Alternatives and Real Assets at Deutsche Asset and Wealth Management.

 Annex IV is part of European regulators’ efforts to identify build-ups of systemic risk in the capital markets. The FCA is currently liaising with other global regulators to better identify any potential market risks through enhanced information sharing, for example. One challenge facing the FCA and European regulators is that the methodologies used in Forms PF and CPO-PQR differ from that of Annex IV.

Obtaining consistency across these reports is some way off, although there is a possibility regulators might leverage Open Protocol, the risk reporting tool developed by Albourne Partners. However, this would require Open Protocol to adopt some more calculations employed by Form PF and Annex IV.

COOConnect will be publishing a guide later this year on regulatory reporting.


AIFMDAnnex IVForm PFForm CPO-PQRSECCFTCVOPConceptOnePwCDeutsche BankFCAOpen ProtocolAlbourne Partners