Intensifying global regulations have dramatically increased reporting complexity, leading to higher operational costs for financial services firms. Here’s how CIOs and CCOs can establish a strategic approach to cut through the complexity and prepare for the ongoing evolution of global compliance requirements.
Over the past few years, traditional and alternative asset management firms alike have faced an unprecedented shift in the regulatory landscape. Mandates such as the Alternative Investment Fund Managers Directive (AIFMD), Dodd-Frank and, most recently, the Foreign Account Tax Compliance Act (FATCA) have dramatically increased reporting complexity, leading to higher operational costs to meet these new compliance standards. For chief information officers (CIOs) and chief compliance officers (CCOs), the answer lies not in developing a framework to comply with the current standards, but instead establishing a strategic approach to cut through the complexity and prepare for the ongoing evolution of global compliance requirements.
Cross-Enterprise Standardization and Integration
The first step to meeting compliance demands is establishing internal standards that are integrated across disciplines. Siloed systems increase complexity, as existing risk management and reporting practices lack a common language or comprehensive platform to streamline enterprise-wide reporting capabilities. Establishing a fully integrated data management and regulatory reporting platform reduces compliance costs by moving to a single, uniform system for meeting compliance. Once properly integrated, firms not only can react quickly to internal changes in data and reporting flows, but also adapt to the rapidly evolving multi-jurisdictional reporting requirements that can hamper competition within global markets.
According to “The Cost of Compliance,” a report issued in October 2013 by the Alternative Investment Management Association (AIMA), the Managed Funds Association (MFA) and KPMG International, the average spend on compliance was at least US$700,000 for small fund managers, $6 million for medium-size fund managers, and $14 million for large fund managers.
As asset management firms face complex and often conflicting reporting demands across multiple regions, it requires many man hours to meet the requirements. This is time that could be spent maximizing the value of the firm or returns for investors. Building an internal architecture that recognizes consistencies throughout jurisdictions and addresses evolving regulations, while building out standardized processes, leads to greater cost efficiencies and data integrity.
Control to Minimize Cost
Creating an integrated, comprehensive platform to manage risk management and meet compliance requirements – both enterprise-wide and externally – provides the tools to improve data governance, enhance controls and manage costs in the ever-changing landscape of regulatory reporting. Streamlining financial reporting processes by improving data integrity, transparency, traceability for audit and verification purposes lays the foundation to support taxonomy requirements worldwide, including automation of complex reporting business logic, data integration, governance and accountability when faced with stringent timeframes. Establishing an automated process of governance and control minimizes costs and ensures compliance – allowing managers to maximize their value to investors.
In short, investment managers should develop a regulatory strategy based on the fact that compliance requirements are likely to continue to evolve over time. Maintaining consistency of language and disclosures throughout the enterprise will be critical to meeting that mandate. Strategic, enterprise-wide, collaborative reporting, with a focus on meeting multi-jurisdictional regulations, will serve as the foundation for the regulatory reporting environment of today and the future, allowing managers to effectively execute upon their own mandates.