An Operational Risk Powder Keg for Asset Managers

This blog previews the full article you can read here.

Record Breaking Deal Volumes…

Merger and acquisition (M&A) activity in the asset and wealth management sector set a new record in 2019, with a total of 212 deals and a combined transaction value of $11.6 billion – more than twice the level seen in 2018. That’s the second straight year of record deal making volume as a perfect storm of rising costs, fee pressures and increased competition forces a wave of consolidation across the industry. 

…Are Igniting Global Shareholding Disclosure (GSD) Challenges 

While the goal of these deals is to achieve economies of scale, and streamline and improve technology adoption, big asset management mergers do not always achieve that goal.

Risk factors for deals that do not work, include:

  • Complicated leadership structures
  • A lack of centralized business functions 
  • Non-holistic technology infrastructures

In addition, a significant challenge for asset management firms experiencing M&A is confident compliance with global shareholding disclosure (GSD) rules. This steadily expanding and evolving slice of the compliance landscape is wreaking havoc on asset management firms that are suddenly exposed to new regulatory jurisdictions, reporting thresholds and complex data governance challenges.

Sometimes, an asset manager doesn’t even know they have lit the fuse on a set of requirements that they are now obligated to meet.

Handling Dynamite

The biggest overall GSD challenge for asset managers to overcome is nuance. Each global jurisdiction has its own requirements – and those can change constantly. Over the course of 2019, for example, there were approximately 60 material regulatory changes to GSD requirements in different parts of the world. Simply keeping pace with those changes is difficult enough – but implementing effective reporting strategies nimble enough to adjust to changes on the fly is a real challenge.

Even with the most proactive compliance strategy in place, some GSD requirements are simply difficult to manage and must be addressed accordingly. So that they won’t be left holding dynamite, asset management firms are asking themselves if they have the correct processes in place to address a wide range of GSD requirements, including:

  • Aggregation and disaggregation rules
  • Firm-wide data harmonization
  • Identification of reporting regimes 
  • Jurisdictional monitoring nuances
  • Market shocks and emergency rule making, including the recent COVID-19 pandemic 
  • Administrative continuity

Furthermore, the global shareholding disclosure (GSD) challenge for asset managers must be examined on multiple fronts. 

Internally
Asset managers need to know what they own, how much of it they own, where it’s from and how long they’ve owned it at the manager, fund and entity level. 

Externally
Once ownership information is identified; they must look externally across multiple jurisdiction exposures and determine whether they have triggered any reporting requirements.

Defusing TNT

To-date, the status quo among newly merged asset management firms has been to implement stopgap measures, with armies of attorneys and consultants pouring over their portfolios. This strategy is neither efficient nor cost effective.

Firms that meet GSD compliance with confidence are those that take a multidisciplinary approach to managing reporting – utilizing a combination of domain expertise and technology. A holistic, multidisciplinary approach means marrying legal expertise and timely interpretation of local laws with technology that can handle data and manipulate it seamlessly. This ensures automation of equity ownership monitoring and reporting requirements so that the compliance minefield can be successfully managed both immediately and going forward.

To learn how to defuse TNT by leveraging AxiomSL’s expertise, please read the full article here.


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