COOConnect interview with Mitsubishi UFJ Fund Services

11 Dec, 2014

Regulators and investors are demanding more data than ever before from fund managers. COOConnect spoke to Tim Thornton, Chief Data Officer, and Paul Didyk, Chief Technology Officer at Mitsubishi UFJ Fund Services about the data challenges facing fund managers and service providers in this new regulatory environment.

COO:  Can you provide an overview of the type of data managers are expected to supply to the regulators?

Thornton: For regulators, the data requirements can be divided into two areas. There is portfolio information – for example, that contained within Form PF that is supplied to the Securities and Exchange Commission (SEC) and Annex IV, as mandated under the Alternative Investment Fund Managers Directive (AIFMD). This comprises of information such as asset class exposures, securities and risk information. Secondly, global authorities also demand information on investors courtesy of the Foreign Account Tax Compliance Act (FATCA), the UK FATCA and the OECD’s Common Reporting Standard (CRS). Data required for these initiatives include reporting on investor domicile, so as to enable tax authorities to identify investors and whether they are paying their taxes accordingly. The European Market Infrastructure Regulation (EMIR) requires managers to supply trade data as part of the regulator’s efforts to identify systemic risk in derivatives markets.

COO: Can you provide an overview of the type of data managers are expected to provide their investors?

Thornton: Investors are looking for transparency reports containing information like portfolio exposures on an aggregated basis and pricing. Have assets been priced by the manager, or on a mark to market basis, or by a third party? Investors also want basic risk information. This is in addition to ad hoc inquiries and access to historical documents. The Open Protocol initiative unveiled by Albourne Partners has not seen a huge take-up in our client base, although we do provide the service for a handful of clients. This raises the question as to whether investors want risk data presented to them in a standardised format or in a bespoke, exact manner.

Didyk: In addition to the various accounting data, investors are increasingly institutionalised, as opposed to being high-net-worth individuals. These institutions are demanding far more details about their fund managers’ operations and those of their service providers including their disaster recovery provisions, business continuity planning, resilience to market stress events and in-depth information about data and security.

COO: Where is all this data held?

Thornton: Traditionally, this data is held all over the place. Portfolio information could be in the general ledger. Investor information could be in the reporting systems or stored offline in spreadsheets and servers. Bringing all of this disparate data into a single environment is a big challenge. The fund administrator is the party that is closest to holding all of this data in one place. Administrators do not possess all of the data, but they have the bulk of it. Therefore it is natural that the fund administrator is best placed to provide data aggregation.

COO: How challenging are all of these varying data requirements and why?

Thornton: There are a variety of challenges when dealing with the changing requirements. Regulatory demands on exposures contained in Form PF and Annex IV are different insofar as there are different methodologies behind the calculations. Information required for the different FATCAs is not uniform. What is more is that the rules are changing, as is the volume of data that is being asked for. Six years ago, there was minimal investor reporting and perhaps annual returns to regulators.  Now some fund managers are reporting quarterly to the SEC and EU regulators, as well as various tax authorities.

COO: How is this forcing service provides to evolve?

Thornton: The issue is bringing together data from disparate sources to automate reporting on behalf of clients and building in flexibility to your operating systems to deal with regulations as they come along in the future. There is no point having systems in place to handle one rule, when that rule is likely to evolve.   Service providers must move to being data driven otherwise the increasing volumes and requirements will impose prohibitive costs and confusion on operations.

COO: How are service providers helping managers with these challenges around data?

Thornton: We try to create data linkages. We are linking all of our systems together including previously standalone systems such as HR and billing to enable one view of all data with a specific meta-data tag.  We are linking our general ledger to the external risk information and investor information, or utilising risk data from Bloomberg, and we aim to give the manager a one stop shop self-service source of data rather than five or six multiple sources. Fund administration is no longer just about striking a NAV but providing managers with all of the data they require.

Didyk:  To meet these challenges we are implementing a number of tools and data governance processes. We have to impose greater discipline on how data gets into our environment, how it is stored and tagged, how it is linked and how it is transformed in order to get what we and our clients need out of the other side.

COO: How are regulators making use of this data, and is it achieving its stated aim of curtailing systemic risk?

Thornton: It is hard for us to know what the regulators are doing as we have not received any feedback on the client reports we have submitted to them. The big question is whether regulators will be able to make effective use of all of the data given the sheer volume of information they have to look at, and the resources they have. I would question whether regulators will be effective at curtailing systemic risk under the current reporting environment because the volume of data they possess is significant, and often that data is out of date when regulators receive it. The portfolio may have turned over three or four times by the time quarterly information is reported. If regulators want to curtail systemic risk, they need near real-time reporting but it has to be straightforward and standardised, as opposed to long winded bespoke forms requiring extensive data mapping, which take time to create.

COO: Will we see a standardisation of regulatory reporting anytime soon?

Thornton: I would like there to be greater standardisation. But with rules like AIFMD, we have more reporting and less standardisation. All of the tax initiatives – US FATCA, UK FATCA and the OECD’s CRS – are different. There is a lot of regulatory competition out there at the moment so unfortunately standardisation is unlikely to occur anytime soon.




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