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Press

AQMetrics Second Annual “Women in Funds” Event

DUBLINJuly 18, 2017

Leading RegTech company, AQMetrics, today announced its successful second annual “Women in Funds” event, hosted in Berlin on June 14, 2017. As part of FundForum International, attended by 1,400 asset managers, fund selectors and distributors, AQMetrics, along with co-sponsors Brown Brothers Harriman (BBH) and FundForum, joined forces to bring together a growing network of senior men and women supporting the growth of the number of female professionals in the funds space.

With a 100% increase in attendance over last year, this year’s networking event saw an impressive 90% of female CXOs at FundForum attend with a notable increase in the number of middle and senior management participants and male attendees. A growing number of participants expressed an interest in leading Women in Funds initiatives at their own firms as well as in conjunction with AQMetrics.

“As an entrepreneur with over 20 years in the funds management sector, I’ve seen firsthand how talented female professionals are increasingly shaping and driving value across the industry,” said Geraldine Gibson, CEO of AQMetrics. “As a female-led firm, AQMetrics is honored to play an integral role in supporting and helping women succeed. The success of the second annual ‘Women in Funds’ event showcases the importance of the funds community coming together to promote the growing inclusion of women in senior-level roles.”

As the largest global investment management conference, this year’s FundForum International included presentations such as Manjula Lee & Baroness Verma: The bottom line with World Wide Generation and Gibson’s own panel discussion Fintech Innovation in Back Office and RegTech: A Showcase of Transformatory Ideas.

About AQMetrics

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.

More information is available at http://www.aqmetrics.com or follow us on Twitter @AQMetrics


Blog, MiFID II:Articles

MiFID II: Addressing the Challenges Together

With the final implementation of MiFID II now a mere six months away, the time has come for individual firms to seriously consider how these rules will impact them and the daily running of their business. At AQMetrics, we believe this can best be achieved by meeting with your industry peers in order to discuss, share and collaborate to jointly find workable solutions for the myriad of issues this new regulation presents. And so, with this aim in mind, last week we held our inaugural MiFID II meetup in London, bringing together industry professionals from across the financial services industry in an informal setting.

Our first event also proved to be extremely timely, with the UK’s Financial Conduct Authority (FCA) having published its second – and final – policy statement only the day before. This latest publication sets out the regulator’s completed rules on key conduct issues, including research, inducements, client categorisation, best execution, the appropriateness test, taping, client assets and perimeter guidance. In addition, it also published a sixth consultation paper, which addresses a small number of residual issues, and finalised a number of ‘near-rules’ from its policy statement in March.

Tackling the issues

But speaking on the night, Lene Hansen of Bips Global warned about the importance of not just trying to put a ‘sticking plaster’ on the needs of the industry when it comes to MiFID II compliance. Instead, she urged businesses to take a holistic approach to meeting the needs of various financial firms and to reach-out more to utilise the skills available in our industry. Yet while the sell side appears mostly prepared for the implementation of MiFID II, buy side firms persist in keeping their heads in the sand, according to Jonathan Cowan from Calypso Technology. Best execution is also a big issue for most market participants, he added.
In fact, the implementation of MiFID II is proving massively disruptive for many on the buy side, TABB Group’s Monica Sommerville explained. She believes that the new rules are having the largest impact on those firms classed as systemic internalisers and that collecting new data will prove to be a challenge. For example, how can firms interface with other systems across different functions in their business? Representing the FCA, Stephen Hanks responded by reassuring attendees that the FCA are taking a pragmatic approach to firms who can demonstrate they have made ‘honest efforts’ to comply with the new legislation. He added that there are certain assumptions participants can make which will demonstrate they are genuinely trying to implement the necessary changes.
Sharing solutions

However, Hanks warned that while the FCA recognises the challenges faced by the market, it will still require firms to make reasonable efforts to comply. To help them with this, he said the FCA will be hosting a number of roundtables covering specific aspects of the new rules – such as transaction reporting, which it will cover in its Supervision Roundtable on 17 July. Responding to a question from Breige Tinnelly, he concluded that having an effective governance structure and culture in place will greatly aid firms in their implementation of MiFID II. In its policy statement, the FCA also urged firms to continue with their preparations for the application of the new regulation on 3 January 2018. By bringing together the MiFID II community and connecting people from the worlds of compliance, technology, financial services and beyond, AQMetrics hopes to add value to this process and help firms establish how to best prepare for the changes ahead.


Buzz

AQMetrics Selected to Speak at RegTech Solutions for the Funds Industry

Breige Tinnelly as Head of U.K. Office to present on evolving RegTech landscape

Dublin, 26 June 2017: Leading RegTech company, AQMetrics, has been selected to present at the inaugural ‘RegTech Solutions for the Funds Industry’ on 28 June 2017 in Luxembourg. The conference, hosted by FinnoLux, Enterprise Ireland, and the International RegTech Association (IRTA) with the support from the Irish Embassy, will feature a panel of industry experts across the RegTech industry, including AQMetrics’ Breige Tinnelly, Head of Sales, U.K.

The breakfast seminar will be held at the Hotel Le Royal in Luxembourg and will show a first-hand picture of RegTech solutions and explore possible partnership opportunities for successful digital transition.

“This seminar is a great way to bring together leading RegTech companies and industry bodies to discuss all things RegTech,” said Breige Tinnelly, Head of Sales, U.K. “I am looking forward to showcasing AQMetrics expertise as well as hearing from other like-minded professionals.”

Attendance is free of charge, however as spaces are limited, registration is mandatory. You can register here: https://www.eventbrite.com/e/regtech-solutions-for-the-fund-industry-tickets-35206928872

About AQMetrics

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.


Blog

The Regulatory Pressure on Funds for Data Accuracy

Speaking at this year’s Global Alternative Investment Management Conference (GAIM), Suzan Rose, chief compliance officer (CCO) at Marshall Wace North America, voiced the key Regulatory pressure facing anyone registered as CCO of an investment fund, even though many are not fully aware of it. Essentially, any CCO who submits false statements or omissions may face criminal prosecution. But how can funds ensure they are achieving the necessary levels of transparency and accuracy required by the regulators, and why is this process not always as straightforward as it seems?

Differing priorities

A key reason why this process is not always clear is that many portfolio managers view and understand their business in a different way than how they must report the information to the regulator. For example, if I run an equity portfolio, my key concern will be my net market position. I may have $1 billion in long equities, $900m in short equities and perhaps another $100m in derivatives. I need specific information to help manage my portfolio, my return on investment and my business as a whole. And yet when I come to report this data to the regulators, that same information is of little to no use to them.

Instead of a breakdown of longs, shorts and derivatives, regulators are ultimately only interested in knowing my overall total—my combined exposure of $2 billion. They’d also ask for the breakdown of all underlying exposures by security type, by country, etc. But in turn, these regulatory reporting standards and their requirement for reporting in terms of gross numbers actually means very little to a portfolio manager. Historically, reporting was completed manually in spreadsheets with your fund administrator, either internally or by hiring a lawyer or auditor to help put it together. So when the regulatory data is submitted, it is only the final numbers that are available to view and not the breakdown, what it’s comprised of or any verification of its accuracy.

Providing certainty

This of course poses a significant problem for CCOs/CFOs. If they are submitting information to the regulators but they can’t easily trace how these figures were reached, they have no real certainty that the numbers are good, accurate and verifiable. And again, if they are found to be incorrect, the fund and its CCO/CFO may have to face the serious financial, reputational and legal consequences of that failure. In the UK, the US and Europe, respective regulatory bodies now require all investment funds to register their business particulars, which includes having to name their CEO, CFO and CCO. This is still a requirement, even if your firm does not necessarily have this compliance function as a separate role. And with the introduction of new regulations aimed at the detection and prevention of fraud, the risks of a custodial sentence for reporting inaccurate information is now very much a reality.

By employing a solution tailored to help with the full range of reporting requirements, such as that offered by AQMetrics, funds can quickly and easily bridge this information divide. AQMetrics enables the CCO/CFO to drill down into the data so it is no longer just an unverified number on the page. The CCO/CFO can see the reportable, gross numbers and click on each to view the underlying breakdowns by securities, longs, shorts, by country—whichever way they best understand and read their data. Knowing how the reportable data aligns to the various components of their portfolio provides a welcome and invaluable level of comfort and certainty to anyone with legal responsibility for the management of a fund.


Blog

Achieving certainty of your Portfolio Risk Analytics with Open Protocol


By Ryan Kipp, Head of Sales Americas, AQMetrics

From rogue traders to hedge fund failures, Ponzi schemes to Madoff, it is little wonder that operational due diligence (ODD) has become such a vital component of the asset management industry. And with regulatory obligations only set to increase in the very near future, these evaluations will play a key role in improving transparency and accountability across the sector from investment managers to their investors. Yet, as many funds are still overly reliant on manual processes, such as the use of spreadsheets to monitor their portfolio risk, they really do need to adopt a more audit focused solutions instead.

Setting the standard with Open Protocol

These evaluations primarily exist to protect investors, ensuring all proper controls are in place and evaluating the fund’s portfolio risk. This has led to a growing push for greater adoption of the Open Protocol standard. Developed in 2011 in a bid to improve fund transparency and help investors aggregate their exposure, the Open Protocol template is a way of evaluating a fund’s portfolio risk and reporting that information in a standardised fashion. Open Protocol covers all major asset classes with counterparty risk and investor breakdown. It is structured in 3 Grades such that managers can provide the information at different levels of granularity (depending on their preference/comfort level). In May, the Hedge Fund Standards Board (HFSB) took on the role of co-chairing the Open Protocol Working Group alongside Albourne Partners, so the increased importance in the industry is clear.

However, if you’re a firm that has been historically receiving investments from family offices or other non-large institutional investors, you may not have needed a rating from an evaluator such as Albourne, Aksia or Cliffwater at all. But if you’re going to raise institutional money—such as pension funds, endowments etc., then these types of investors now typically require you to have a rating. And while a rating evaluates how strong a fund is, Open Protocol calculates and reports the findings. For example, Open Protocol might examine the Value-at-Risk (VaR) for the portfolio sensitivity to market changes, and stress tests for various scenarios, including catastrophic events.

Spotting dangers

Even if Open Protocol is not yet a regulatory requirement for your jurisdiction, it is likely to still be very high on your investors’ wish lists. By adopting an automated solution for the portfolio risk component of ODD, you can also ensure this is achieved in a secure, efficient and cost effective way.  For example, AQMetrics’ technology can provide Open Protocol reporting for your risk analytics. Additionally, we can enable alerts and automated reporting at the operational analyst level. You can then translate that information and put it out to board reporting, or you could put it out to investors for operational due diligence, helping you complete yet more pieces of your compliance puzzle.

We expect the Open Protocol to become increasingly adopted among investment firms, as the need for standards around evaluation of portfolio risks evolve.


Press

AQMetrics updates platform for Form N Port

Form N Port

DUBLIN, June 1, 2017 /PRNewswire/ —

Leading RegTech company, AQMetrics, today announced new enhancements to its cloud-based platform. The updates will provide registered fund clients with updated forms, including Form N Port, and an advanced risk analytics and monitoring portal to ensure compliance with the Securities and Exchange Commission’s (SEC) new reporting regulations.

The new rules, which go into effect in June 2018, change several registered fund reporting requirements, including the addition of Form N-PORT, Form N-LIQUID and Form N-CEN.

“We are constantly evolving our RegTech solutions to meet the needs of our ever-growing client base,” said Geraldine Gibson, CEO of AQMetrics. “When the then SEC Chair, Mary Jo White, first introduced the concept of updated SEC reporting regulations for investment companies back in 2015, we got to work developing an industry-leading solution that will make complying with the new requirements as seamless, efficient and accurate as possible for our clients.”

Aimed at addressing the fund industry’s significant changes over the last twenty years, ranging from the advent of Exchange-Traded Funds (ETFs) to increased use of alternative strategies, the new SEC reporting regulations modernize and increase the transparency of registered fund reporting to enable investors to more accurately gauge and manage risk. Specifically, the new Form N-PORT, replacing Form N-Q, requires monthly portfolio holding reporting while the new Form N-CEN, replacing Form N-SAR, requires annual reporting of census-type information. Further, Form N-LIQUID promotes effective liquidity risk management for open-end management investment companies.

“Our platform updates and enhancements not only allow our registered fund clients to be confident in their ability to comply with the new regulations, but they go a step further – giving our clients access to robust risk analytics through the monitoring tool suite we’ve developed in tandem with the updated reporting mechanisms,” said Claire Savage, COO of AQMetrics. “When new reporting regulations, like the SEC modernization rules, come down the pipeline, we see an opportunity to not only ease our clients’ compliance burden but to actually offer them more insight into their fund performance.”


Press

AQMetrics Continues Client Growth with Addition of Three Top Firms

DUBLIN, May 25, 2017 /PRNewswire/ —

Leading RegTech company, AQMetrics, today announced new relationships with Alcova Asset Management LLP, Colchis Capital Management, LP and Hibernia REIT plc. The addition of these three firms demonstrates the Company’s ongoing global growth as an increasing number of companies select AQMetrics’ award-winning technology to help meet their regulatory and compliance needs.

“We are delighted that our advanced technology solutions are being adopted globally by very large PLCs and banks through to small to medium-sized firms,” said Geraldine Gibson, CEO of AQMetrics. “Our goal is to consistently provide best-in-class risk, regulation and compliance services to each one of our clients. We look forward to working with our new customers to help them navigate the changing regulatory and compliance landscape.”

As the regulatory space becomes increasingly complex, AQMetrics continues to introduce new technology and solutions to help organizations mitigate risk and adhere to regulatory requirements. The addition of these three firms represents AQMetrics’ growing reach across various sectors in the financial services industry. Alcova is a multi-strategy quantitative hedge fund based in London. Colchis Capital is a leading investment management firm based in San Francisco and focused on specialty finance lending. Hibernia REIT plc is a Dublin- focused Real Estate Investment Trust listed on the Irish and London Stock Exchanges.

“As our client base continues to expand around the globe, I am especially thrilled to see the growing traction in the U.S following our entry into the market last year,” said Ryan Kipp, Head of Sales, Americas, at AQMetrics. “Colchis is a leading investment management firm here in the U.S., and the addition of this company to our impressive client roster reaffirms our growing stateside presence.”

About AQMetrics

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.

More information is available at http://www.aqmetrics.com or follow us on Twitter @AQMetrics

Media contact
Caliber Corporate Advisers
Kristina Pereira Tully
+1-888-550-6385 ext. 5
kristina@calibercorporate.com


Blog

Joining the Dots: The Value of an Integrated Approach to Risk Monitoring and Regulatory Reporting

 

By Geraldine Gibson, Chief Executive Officer, AQMetrics.

Regulatory reporting and risk monitoring are now, quite rightly, both considered high priority for most firms in the financial industry. Yet despite the growing reliance on quality data, analytics and insights to remain compliant in both of these areas, the tendency is still for them to be run on separate systems and monitored individually. In fact, firms that are still collating their data in this manner – instead of taking a unified approach – are not only making it more timely and difficult to respond to regulatory queries, but are also missing out on rich data insights which could prove beneficial to their business as a whole.

Even in terms of data reporting, regulatory bodies are increasingly focused on identifying risk. If your firm is then queried by the regulator about certain outputs, isn’t it much simpler to have one single, unified data system to consult rather than trying to contact multiple vendors? A central, ‘golden data’ source means all your information is available in one place, making responding to regulatory queries a far simpler task. Also, if you’re reporting through one system and calculating risk with another, then you simply don’t have all the dots joined-up to form valuable, rich data insights. But by unifying these systems, you enable additional insights which can then be used to develop more advanced analytics and risk measures.

Accuracy is assured

In today’s investment and asset management industry, being able to generate this level of reliable, insightful data is a must. Not least considering the range of current and upcoming regulatory requirements for this sector, including:

  • MiFID II and MiFIR;
  • The Alternative Investment Fund Managers Directive (AIFMD);
  • The UCITS Directive (UCITS V);
  • The SEC modernisation of fund management regulation, expected to be implemented in 2018.

And on the risk monitoring side, the ability to readily view where your market, credit and even enterprise risks are can be just as vital.

A further point to consider is that if you are still using multiple systems to populate your data, effectively you’re doing the work twice. Or if sourcing the data is a challenge, again you would be better off having one, single system. This enables you to more easily identify and plug any gaps in your data, which in turn helps remove the problem of inaccurate data. But by reporting data to the regulator from one system, and monitoring risk from another, you’re storing a different snapshot of data and cannot be as confident about its accuracy.

Speed and resilience

In addition to a growing focus on risk, new regulatory requirements are also mandating higher volumes of transaction data and more frequent reporting from individual firms. Therefore, the increased latency created by risk systems outside a single source may result in a delay in your frim being able to report. But by using a single source, the speed and efficiency of retrieving your data is assured. Furthermore, running multiple systems can also decrease your company’s overall resilience to cybercrime threats. By operating a single data source, you increase your information security and reduce your risk of multiple points of failure or attack.

So just how difficult is it to create this unified, golden data source? Initially of course, there is the task of retrieving all historical data and having it mapped to the single system. Yet following this one-off data onboarding, that system becomes the new working data source. The process is the same as any migration to a new system. At AQMetrics, we look at the risk level of each individual instrument and then correlate these at an asset class level, before comparing and reconciling them up to a portfolio level. And finally, having the data in one place allows us to view the links between different factors, such as geographic exposures or sector exposures. These are far more difficult to spot when working with spreadsheets or even on disparate systems. A unified, golden data source enables you to ‘slice and dice’ the information in a way that just isn’t possible without it.


Blog

AQMetrics Adds Legal Expert to Lead New U.K. Office

Breige A. Tinnelly joins RegTech Firm to continue driving growth within the U.K.

DUBLIN and LONDON, May 8, 2017 /PRNewswire/ —

Leading RegTech company, AQMetrics, today announced that recognized industry veteran, Breige A. Tinnelly, is joining the firm as Head of Sales, U.K. Tinnelly will oversee AQMetrics’ newest office based in London as the firm takes the next step in its ongoing strategic growth initiative.

Tinnelly’s hire combined with the firm’s growing number of locations reaffirm AQMetrics’ position as a leader in the RegTech space, dedicated to serving the robust global network of clients who rely on its award-winning cloud-based RegTech platform.

“As a former lawyer with a deep understanding of the needs of AQMetrics’ target market, Breige brings the exact expertise and experience we were looking for to lead the U.K. sales team,” said Geraldine Gibson, CEO of AQMetrics. “In opening a London-based branch, we are employing the proven expansion strategy that enabled our successful entry into the U.S. market. We are committed to continuing our energetic growth trajectory by adding domain experts and expanding our physical presence throughout the world, so that we can continue to meet our clients regulatory risk and compliance needs – wherever those clients may be.”

Tinnelly brings over 20 years of professional experience in law and financial services to her new position as Head of Sales, U.K. Prior to joining AQMetrics, Tinnelly served as Senior Vice President at U.S. Bank and as Vice President of BNY Mellon. Tinnelly was previously a Managing Partner at Carlingford Capital Ltd, an advisory firm providing consulting services to private equity funds and asset managers. Before moving into the financial services sector, Tinnelly practiced law in the U.K. with the firm Cleary Gottlieb Steen and Hamilton and worked at the New York-based law firm Felcher, Fox and Litner.

Tinnelly is AQMetrics’ most recent senior hire as the Company continues attracting top industry talent. In January the firm added Cathal Connolly as Head of Global Regulatory Reporting based in Ireland, and Ryan Kipp as Head of Sales, Americas, based in the U.S.


About AQMetrics

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.

More information is available at http://www.aqmetrics.com, or follow us on Twitter @AQMetrics

Media contact
Caliber Corporate Advisers
Kristina Pereira Tully
+1-888-550-6385 ext. 5
kristina@calibercorporate.com


MiFID II:Articles

MiFID II: Time to Tackle Transaction Reporting in Detail

By Steve Barnes, VP of Technology, AQMetrics.

Following the recent changes to mandatory transaction reporting (TR) being introduced under MiFID II, there are now a number of vital new reporting obligations which the markets must rapidly become familiar with. Yet as was revealed by a recent webinar I took part in on TR data and data management challenges, it was clear that the industry is hungry for additional clarity and detail around the specific changes to these reporting requirements.

Scale of the challenge

A particularly concerning point for firms, which I covered in the webinar, involves the new set of reporting fields and the potential difficulties involved in extracting this data from their existing systems. For example, general fields will require extra steps in an ETL process to continue to ensure the quality of the data. There is also an emphasis on the mandatory use of Legal Entity Identifier (LEI) codes. In the case of the buyer and seller fields, all legal entities will need to be referenced against a global LEI database before submitting to the regulator – or the report will fail. This requires extra due diligence to protect the data quality.

In the case of the buyer consisting of an actual person, details such as their first name, last name and date of birth may need to be obtained from the human resources department. A firm’s internal systems may never have had to interface with HR before and, depending on the size of the organisation, the data may also be in siloed systems. This might involve developing a data programme to get these systems working together. Accessing these systems may take a longer time than firms initially expect, which is especially worrying for firms that have not started the process yet.

Additional considerations

Furthermore, the addition of OTC derivatives has complicated matters further in relation to data fields. This is mainly due to questions around how to classify OTC derivatives under the ISO data standards. The algorithms needed to differentiate between decision maker and executer, alongside additional challenges indetermining where to apply the pre-trade waiver to commodity derivatives are proving a certain level of complexity exists above and beyond that seen under MiFIDI. Sourcing the data can also be problematic, particularly if the systems have not interfaced to before, or if they have not been updated for some time.This will ultimately prove to be a key data reporting challenge for most firms.

Webinar participants were also interested in the potential impact of the incoming General Data Protection Regulation (GDPR), due to come into force in May 2018, and the wider data protection issues raised by the mandatory collection of data about individuals. In terms of details such as names and date of birth being required then they ought to be protected by existing data protection rules. In terms of third-party data through an Approved Reporting Mechanism (ARM), then ARM service providers will need to have a GDPR policy.

Effort that pays

Overall, data quality is key to most of these requirements. For example, AQMetrics uses programmatic regulatory control checks to ensure the data quality meets the required standards before submitting to the regulator. These checks are relatively simple for certain numerical fields, dates and country codes,  but problems can arise when the data is unstructured such as names or passport details. The source system data may originally be of poor quality for historical reasons. As a result, performing a data quality exercise on the existing systems before data gets channelled through for transaction reporting is essential. Data control is especially key under MIFIR. Moving from manual systems, such as records held on excel spreadsheets, to more automated systems may involve a third-party who can implement better auditing and governance processes.

AQMetrics offers a full range of risk and compliance solutions for MiFID II transaction reporting. AQMetrics is authorising as an ARM under the Central Bank of Ireland and plans on passporting its MiFIDII transaction reporting services to regulators throughout Europe . Firms tend to find that once their TR is being correctly implemented, then the benefits for getting MiFID II right go further than just regulatory compliance. It is very useful for firms to have a single view of the data they are collecting, where is came from and knowing the limits of their systems. This data can then be used elsewhere in the organisation. But the main takeaway I hope practitioners gained from the webinar was simply to not leave updating their systems for the new requirements to the last minute. Many of the necessary changes may be much bigger and more expensive than initially expected, so it really does pay to start early.

The full webinar recording: “MiFID II: Data for transaction reporting” is available here.

Webinar link:

http://resource.datamanagementreview.com/webinar-recording-mifid-ii-mar2017

 


Cyber Security

Cybersecurity Risk and the Need for a Holistic Approach

By Lorraine Toland, Business Development Representative, AQMetrics

Cybersecurity threats are now high on the list of risk mitigation priorities for most firms and institutions – and if not, then they certainly should be. In addition to the reputational damage an attack can cause your firm, it is now widely recognised that they can also wreak serious financial damage, which in turn can negatively impact your investors and shareholders. Furthermore, cybersecurity must now be viewed in relation to all other operational risks. Yet despite the consequences of cybersecurity breaches and the growing regulatory impetus to consistently monitor, as well as evaluate, risk management processes and have a holistic register in place, this is not yet ingrained in the culture of most firms. But change may well be on the horizon.  

 

Outdated methods

The Central Bank of Ireland (CBI) recently highlighted the need for most firms to radically improve their approach to risk monitoring. Since 2015, the CBI has been carrying out onsite thematic and targeted inspections of various firms’ cybersecurity provisions. The concerning issue it has uncovered is that the risk registers in most institutions are completely outdated, of poor quality and are still being updated manually ie, on spreadsheets. In addition, it believes that firms shouldn’t be monitoring cybersecurity in isolation but should instead view it in the context of their wider IT security, business continuity planning and risk management strategies.

The CBI’s findings provide a timely warning to the industry in general, particularly in light of recent high-profile failures and the increasing emphasis from global regulators that firms must adequately monitor all risks. Most regulators and inspectors, for example, require all staff – including board members and non-executive directors – to be aware of what is in their risk registers. It is also important to know that your firm would be required to provide regulators with all necessary documents, which may include your meeting minutes, system logs, user access logs, policies and procedures etc. Yet as the CBI discovered, there is often a noticeable lack of technical knowledge, particularly at board level. To remedy this, the CBI suggests having best practice workshops to strengthen the technical awareness of your board members. 

Standardised and understandable

In addition, when you are initially capturing your operational risk data it is vital to ensure that this information is captured consistently across your whole organisation. This then radically simplifies the process of aggregating all your risk information from across different departments, or even different groups. But instead we still find many firms are trying to manually aggregate large volumes of data from a variety of different spreadsheets in different formats, then trying to formulate this into a meaningful report.

But how can your firm achieve consistent data capture efficiently and ensure it can provide meaningful insights into your risk exposure? To this end, the National Institute of Standards and Technology (NIST) has produced a recommended framework and methodology, consisting of five requirements for firms to use in the cybersecurity processes. This is intended to provide a common language for understanding, managing, and expressing cybersecurity risk, both internally and externally. The five core functions are:

  1. Identify: Develop the organisational understanding to manage cybersecurity risk to systems, assets, data, and capabilities.
  2. Protect: Develop and implement the appropriate safeguards to ensure delivery of critical infrastructure services.
  3. Detect: Develop and implement the appropriate activities to identify the occurrence of a cybersecurity event.
  4. Respond: Develop and implement the appropriate activities to take action regarding a detected cybersecurity event.
  5. Recover: Develop and implement the appropriate activities to maintain plans for resilience and to restore any capabilities or services that were impaired due to a cybersecurity event.

 

Weight of responsibility

These five requirements can be used to help identify your governance procedures, formulate a risk management strategy and then to also run formal risk assessments in-house to review your risk register and how successfully your data is being recorded on an ongoing basis. Having an automated, fully auditable risk register will further strengthen this process. For example, AQMetrics offers single cloud-based platforms which enable firms to capture their risk in a consistent and controlled way across their whole organisation. This also provides full auditability, playback capability and all workflows all accessed from a single platform, so it is all in one place.

 

Ultimately, being able to effectively monitor all risk across the board is now vital: from market and credit risk through to business continuity planning (BCP) and third-party vendor risk. With upcoming regulatory changes, such as the implementation of the General Data Protection Regulation (GDPR) next year, having a holistic view of all your risks is also beneficial for demonstrating to regulatory bodies that your firm is indeed meeting its requirements. In addition, it provides an additional level of comfort for your investors that not only are you capturing all of your risk, but you are in fact ten steps ahead. Of course, some firms opt to outsource much of this risk capture to third-parties instead but this can often create additional, unintended risk. You can outsource your risk but not the responsibility – the onus remains on your firm to ensure you have an adequate risk register in place and that risk mitigation is truly an ingrained part of your business culture.

 


MiFID II, MiFID II:Articles

The capture and release of wild data under MiFID II/MiFIR

By Steve Barnes, VP Technology

Wild data is roaming about your organisation. The new Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) will demand you round it up, process it and release it as trade and transaction reports.

The rules will apply from January 2018 to European Union firms, their branches outside of the European Union and financial institutions operating in the EU. Nearly all instruments are subject to the new regulation and directive, where under MiFID I only equities and exchange-traded funds were affected. Over-the-counter (OTC) trade reporting has been captured within the organised trading facility (OTF) and multi-lateral trading facility (MTF) frameworks, where MiFID I only affected trading of instruments on regulated markets (RMs).

Trade reporting will make public information including volume, price and time of execution via an Approve Publication Arrangement (APA). Transaction reporting to authorities is more substantial and must be conducted via an Approved Reporting Mechanism (ARM).

The increase in data fields for the purposes of transaction reporting under MiFID II – from 24 to 65 – multiplied by the increased number of instruments and range of trading involved gives an indication of the greater complexity of data that will need to be managed.

Pulling data together so that it can be normalised takes considerable effort. In the report by analyst firm Aite Group entitled, “Reconciliation Trends in 2016: Regulation and Nervous Recs”, it was estimated that it takes nearly 65 days to develop and build a single new reconciliation.

Investment firms need to understand how and where to report data, then take the operational steps to make it happen. Collectively, these requirements add up to massive project to aggregate and report data.

 

Get it together

Step one is identifying where this data is generated, if it is already captured and if not how to capture it. Some of the new additional data – for example unique identifiers for traders, such as national ID number – may never have been captured and stored before. The risk around storing data of that granularity is considerable and may well require a review of data security measures.  

Transforming that data into the right format to report, via extensible mark-up language (XML) offers further operational challenges, with new data required than before, and certain reporting not having been needed under MiFID I.

The second step will require firms to develop in-house capabilities that they have not had before. They will need to build test harnesses, then build the platforms, harnesses, testing systems, and the silos. This will require a full technology build-out, setting up a rock solid system that can report to the regulator.

For trade reporting, APAs have a five-minute window, near real-time, in which to take on the trade, pass it to the regulator, receive a response and pass that back to the system to determines whether it has been accepted or not. For high volumes of trading that could create real challenges around data latency. A system failure or a slowing down of processing will lead to challenges in fulfilling obligations. Any system built to handle reporting will also need to be able to scale in order to manage this workload.

 

Working the system

The key to handling data at scale is the capacity to tag and reuse it. A smart method of handing that process is using EXtensible Markup Language (XML). It handles the multifaceted nature of the data by managing the many relationships that pieces of information have with one another. Every aspect of the trade is tagged which allows it to be handled by different parties according to their needs.

From an internal perspective, if a firm is warehousing this information it can map fields to tags in the XML, and then run programs – typically Java-based applications – to the XML file, and then run a schema validation. The European Securities and Market Authority, the Financial Conduct Authority and the Central Bank of Ireland will all provide an XML schema to validate it the data.

This creates a massive advantage for firms that employ the technology because the XML file that they have created can be validated and if it comes back with no errors, can be sent to the regulator, with near certainty that it will be good, or nearly good.

Using technology effectively in this process allows a firm to round its herd of data up and brand it, so that the business can be certain of what it has and does not have, removing a massive amount of cost and complexity from the validation process.


Press

AQMetrics Named Best Compliance Product for Small and Start Up Firms at HFM US Technology Awards

 

NEW YORK, February 17, 2017 /PRNewswire/ —

AQMetrics, a leading global RegTech company, today announced it was named ‘Best compliance product for small and start up firms’ at the 2017 HFM US Technology Awards ceremony on February 13, 2017.

The HFM US Technology Awards recognize and reward IT and software providers serving the hedge fund sector that have demonstrated exceptional customer service and innovative product development over the past 12 months. AQMetrics also received the same award at the HFM Europe Technology Awards in December, further signifying the Company’s growing global presence.

“We are thrilled to be recognized as a leading RegTech platform in the U.S.,” says Ryan Kipp, head of U.S sales. “As we continue to grow our local footprint in the United States, this award supports our ongoing commitment to build out our sales network and further expand our offerings in this market.”

AQMetrics uses smart technology to build out effective, efficient and scalable risk and compliance tools combined with the expertise of its industry-leading team of professionals. This technology is built with both small and large firms in mind, and in the last 18 months, over 40 per cent of the firm’s new customers have been small and startup hedge funds. The firm has also continued its commitment to strategic global growth with the recent expansion its sales team and partners throughout the Americas.

“It is an honor to be named the leading compliance product this year by the HFM US Technology Awards,” said Geraldine Gibson, CEO, AQMetrics. “Between this accolade and our recognition in the Europe HFM Awards, these achievements are a direct reinforcement that our innovative risk and compliance technology is playing a significant role in shaping the way customers respond to regulatory demands around the globe.”

This win follows AQMetrics’ announcement of last month, introducing enhancements to its platform specifically geared towards helping clients prepare for the January 2018 MiFID II regulatory deadline.

About AQMetrics 

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.

More information is available at http://www.aqmetrics.com, or follow us on Twitter @AQMetrics


Press

AQMetrics Strengthens Team in Europe and the Americas with Addition of Top Financial Industry Talent

DUBLIN and NEW YORK, Jan. 26, 2017 /PRNewswire/

— Leading RegTech company, AQMetrics, today announced it is growing its global leadership team with the addition of two financial industry experts, Ryan Kipp and Cathal Connolly. Kipp joins as Head of Sales, Americas, based in the U.S., and Connolly will serve as Head of Global Regulatory Reporting, based in Ireland.

These latest hires reinforce the firm’s commitment to attracting industry-leading talent to support the growing adoption of its award-winning cloud-based RegTech platform.

“Ryan and Cathal each bring a level of expertise and breadth of experience that is difficult to match across the financial and regulatory space,” said Geraldine Gibson, CEO of AQMetrics. “As the needs of our expanding client base evolve, we’re committed to growing our team to help clients around the globe better meet the challenges of today’s shifting regulatory landscape.”

Kipp will lead the firm’s continued geographic expansion of its sales team and partners throughout the Americas, building on the company’s focused growth in the region. Prior to joining AQMetrics, Kipp served as Global Head of Sales at financial technology company, Cachematrix. Prior to Cachematrix, he was the Director of Client Coverage within the Global Corporate & Investment Banking division of Bank of America Merrill Lynch.  

Connolly brings to his new role over thirteen years of regulatory expertise in senior roles at Citco and most recently State Street, where he served as Global Regulatory Reporting Director.

Kipp and Connolly join AQMetrics on the heels of the company’s rollout of a series of enhancements aimed at helping buy-side and sell-side clients prepare for MiFID II (Markets in Financial Instruments Directive II) ahead of the January 2018 deadline.

About AQMetrics

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.

More information is available at www.aqmetrics.comor follow us on Twitter @AQMetrics


MiFID II:Articles, Press

AQMetrics Adds MiFID II Readiness Enhancements to RegTech Solution

DUBLIN and NEW YORK, January 12, 2017 /PRNewswire/ —

Leading RegTech company, AQMetrics, today announced new enhancements to its end-to-end risk and compliance solution as part of its award-winning cloud-based platform. These enhancements will help both buy-side and sell-side firms better prepare for MiFID II (Markets in Financial Instruments Directive II), a year in advance of the regulatory deadline of January 2018.

The recent enhancements include:

  • An updated Supervisory Control Portal and Risk Register to provide client classification and product appropriateness factors and scoring
  • Additional Risk Monitoring analytics to cater to Best Execution and Transaction Cost Analysis (TCA)
  • A new regulatory reporting solution whereby AQMetrics is authorising as an ARM (Approved Reporting Mechanism) under MiFID II. AQMetrics is currently reviewing several MDP (Market Data Processor) specifications from National Competent Authorities to enable passporting of MiFID II regulatory reporting into all European Regulators.

With AQMetrics MiFID II solution, buy-side and sell-side users globally will be able to prove they have made best efforts to ensure their clients are classified correctly; that appropriate products are being sold to those clients; and that best execution is achieved. Furthermore, transaction reporting through the AQMetrics ARM will ensure that end-to-end MiFID II obligations are appropriately met.

“We’ve focused on analysing all Regulatory Technical Specifications for MiFID II holistically to provide our clients with a better way to be ready for next year’s deadline,” said Geraldine Gibson, CEO of AQMetrics. “With a comprehensive solution encompassing an efficient user interface, automated data validation, data analytics and an approved reporting mechanism, we’re able to deliver economies of scale to our customers while still maintaining   information and cyber security, data management, analytics and regulatory reporting.”

As firms around the globe prepare for the January 2018 MiFID II deadline, there is an increasing focus on finding ways to leverage modern technology to ensure proper compliance with evolving regulations. By leveraging AQMetrics advanced technology and extensive understanding of the regional and global regulatory landscape, financial firms can be better prepared for regulatory changes as and when they happen.

As AQMetrics continues to add enhancements to meet evolving client needs, the company has received a number of industry accolades noting its success in delivering innovative products to financial professionals. The company was recently voted the best compliance product for small and start up (Hedge Fund) firms at the 2016 HFM European Hedge Fund Technology Awards. AQMetrics was recently chosen by KPMG and H2 Ventures as one of the 50 emerging fintech stars in the annual 2016 Fintech 100 list and was listed by Irish Tech News as one of the Top 20 Irish Fintech companies in 2016.

About AQMetrics  

AQMetrics is a leading RegTech company focused on delivering regulatory risk and compliance solutions for financial professionals. We recognized that the accepted methods of managing risk and compliance were slow, outmoded, and inefficient. We drew upon our team’s deep experience in innovation, technology, law, and financial services to build a platform that performed markedly better, helping our clients leverage technology to more efficiently meet regulatory obligations. The AQMetrics platform has been tested, proven and perfected.

More information is available at http://www.aqmetrics.com, or follow us on Twitter @AQMetrics


Blog

Combating Spreadsheet Risk in Private Equity Firms

By Geraldine Gibson, CEO, AQMetrics

Since the introduction of the Alternative Investment Fund Managers Directive (AIFMD), Private Equity firms have been coming under increased regulatory pressure to demonstrate stronger systems and controls, particularly around data management.

Many PE firms however still rely heavily on Excel spreadsheets for a range of critical tasks, including portfolio valuations, risk calculations, capital accounts allocations, performance analysis and financial reporting.

This is a problem.

It is estimated that over 90% of spreadsheets in use today contain errors. Which means that PE firms dependant on such spreadsheets face significant – and unacceptable – levels of operational risk.

Operational Risks

The risks are many and varied.

First of all, spreadsheets are powerful tools that put programming capabilities into the hands of non-IT users, which means that critical “systems” can be developed without the normal safeguards, oversight and testing that would be associated with a typical development environment.

As a result, errors – particularly in complex formulae – can slip through and lead to incorrect valuations, which can remain unnoticed for long periods of time.

Secondly, spreadsheets are often not subject to change management controls, which means that users can – either inadvertently or maliciously – make incorrect updates, which again may go unnoticed until it is too late.

Another common problem is the fact that the original author of the spreadsheet may no longer be with the firm. As a result, people could be relying on figures without any understanding of how those figures are being calculated.

Add to this all the other poor practices that have evolved around spreadsheet usage, such as multiple versions existing within a single organisation; poor security and lack of password protection; cutting and pasting cells; etc. and it is clear why over-reliance on spreadsheets can lead to unforeseen operational risks.

Expert Systems

To combat such risks, PE firms are increasingly adopting expert systems, designed specifically to perform their most critical tasks in a controlled and consistent way.

In addition to enabling PE firms to perform core processing functions such as fund accounting and reporting, these expert systems ensure that consistent data definitions and standards are in place, enabling better management information around key metrics, for example.

Such systems can also include: pre-populated data fields to prevent data errors; management and control of complex algorithms used to measure portfolio and credit risk (for example); knowledge upkeep and transfer when people leave an organisation, thus eliminating “key man risk”; and much greater levels of security, with full revision management and audit trails both around who has accessed the system and who has changed data.

Additionally, these expert systems can provide documentation management, for example enabling the storage and indexing of documents relating to specific tasks ans risks.

Making the Change

So, what is stopping PE firms moving from Excel spreadsheets to expert systems?

In some cases, it is nothing more than inertia and an “if it ain’t broke, don’t fix it” mentality. Unfortunately for such firms however, overconfidence in the spreadsheets they have relied on for years can prove extremely costly, once errors do eventually surface.

Other firms may realise they need to do something but may not be aware that better solutions are available, or they may believe that such solutions are expensive and only available to larger organisations. But with the latest cloud-based solutions, barriers to entry are actually much lower than they may think.

In conclusion, with PE firms increasingly coming under the regulator’s microscope, and with data management as a key area of concern, firms who are able to demonstrate that they have the right systems and controls in place will not only be in a much stronger position for regulatory compliance, but will also minimise their operational risk and provide greater transparency to their clients, resulting in competitive advantage.


Blog, MiFID II:Articles

2016 Regtech Reflections & Five Predictions for 2017

shutterstock_435902356With 2016 fading fast into the rearview mirror, we’ve taken a close look at the key regulatory and technology trends from the past year and put together our thoughts on what’s to come in 2017. With regulation constantly changing around the globe, financial professionals would be remiss not to reflect on 2016 themes and consider important milestones for the next year.

2016 Lessons – Culture & Conduct Failures… and All Those Fines

This past year, significant fines were imposed around the globe on financial institutions that failed to implement proper culture and conduct procedures and instill a culture of compliance from the very top.

The most notable this year was Wells Fargo, a case study of unhealthy micro-climates within a single – albeit enormous – organization, showcasing the need for a firm-wide culture of compliance. Climates where expectations and rewards are not created with compliance and proper due diligence as top of mind.

Just a few months ago, details emerged around Deutsche Bank being fined $14 Billion just by US regulators – a fine that will cause shock effects across the financial industry.

While regulators around the globe grapple with ways to implement proper procedures, and checks on the banking system, culture & conduct issues are not so easy to manage without proper internal controls and alerting within a firm. We recently dug into this specific topic on the blog, looking more closely at the way culture & conduct are being regarded by regulators.

2017 Predictions

1. Blockchain Proves Its Value.

You’ve heard of it, everyone’s talking about the ways it can change finance as we know it but when will we really see ways for it to be implemented in real-life use cases? We believe 2017 will be the year that blockchain technology goes beyond proof of concept and we see true implementation cases. Blockchain will start to show its real power as critics question the real value of the technology within finance.

2. David & Goliath will Collaborate

We’ve long lived in the years of seeing larger financial institutions act on their own with smaller, innovative firms emerging to take tiny slices of big firm business. In 2017, we expect to see larger and smaller firms collaborating to take advantage of the reach of the big firms and the innovation within the more nimble smaller firms. With the upcoming MiFID II deadline, this type of collaboration will be necessary to address the regulatory changes for any firm doing business in Europe.

3. Regulatory Lessons Learned Abroad.

The theme of internationalization, especially within the financial regulation space, has emerged recently and we see this only expanding further in 2017. For many US firms, we see the ostrich effect taking effect next year as they bury their head, ignoring MiFID II requirements that many US firms still do not realize they have. In 2017 we predict a significant amount of last minute implementation projects around MiFID II, which will place great strain/stress on the business.

The good news is that US firms can learn some lessons from their neighbors across the pond as European firms took advantage of the MiFID II delay to get their ducks in a row. A lot of MiFID II jobs of late are early business stage type roles like organizational and IT change projects. With the deadline approaching, we will see a sudden ramp up, bringing massive competition for human capital in terms of knowledge and experience in the market.

4. Third-Party Risk Under More Scrutiny.

While third-party risks and technology risks have been a theme in 2016, we’ll see more regulators honing in on the risks of third-party providers and technology. This will be a global effort, with a significant amount of attention in the UK around inspecting firms. It’s yet to be seen what the hard and fast approach to this will be in the US, but there will need to be some set level of control, especially when it comes to global organizations.

5. Compliance Must Remain Central to A Firm.

With the impending new leadership in the US, many point to significantly less regulation but general consensus is that past regulatory changes have put policies in place to ensure risk & compliance are core to a firm’s culture.  Compliance and risks will continue to be a core area of focus at the board level of financial firms as investor protections and risk management. We see compliance already built into financial firms today – and we predict they will continue to comply with recommended risk management protocols irrespective of changes from the White House.

With DOL and MiFID II chomping at the heels of firms today, culture, controls and auditing will be key to ensuring regulators and firms recognize what’s going on within their own walls. It will be increasingly important for firms to ask themselves – how do we measure good cultural outcomes? what controls can we put in place?

 

 

 

 


Press

AQMetrics Named ‘Best compliance product for small and start up (Hedge Fund) firms’

DUBLIN (30 November , 2016) — AQMetrics Limited is a Global RegTech company with headquarters in Ireland. On the 29 November, 2016, AQMetrics was named ‘Best compliance product for small and start up (Hedge Fund) firms’ at the HFM European Hedge Fund Technology Awards.

hfm-tech-european-winner-logo

The 2016 European Hedge Fund Technology Awards recognized and rewarded IT and software providers serving the hedge fund sector that have demonstrated exceptional customer service and innovative product development during 2016.

According to CEO Geraldine Gibson, the award endorses the service model at AQMetrics, which is to use smart technology to build out effective and efficient risk and compliance tools for clients combined with a strong team of people. “We deliver first-class integrated risk and compliance technology solutions to big and small firms alike. Fundamentally that’s what clients are looking for from their risk and compliance solutions, an on demand utility that scales when a customer requires scale,” states Gibson.

Being able to deliver the same software to both small and large firms, in tandem with a robust service model, is bearing fruit. According to Gibson, a big chunk of AQMetrics new customers – over 40 per cent – have come from small and startup hedge funds over the last 18 months.

“As larger firms continue to invest heavily in technology, smaller firms are increasingly finding it difficult to deal with the demands of financial regulators. This is because they have to manage their growth in line with a raft of new and emerging regulations. When we came in to the industry in 2012 we had the advantage of building the business using new technology,” says Gibson. This has made it easier for AQMetrics to adapt to the changing regulatory demands that hedge funds  face today.

Moreover, AQMetrics does not rely on an outsource model. By building proprietary technology in Ireland and hiring really smart people globally, it gives AQMetrics the opportunity to add value in terms of both risk management and compliance challenges.

“We don’t have layers of people. Our customers and the regulators are our product managers, which means that each client and regulator has a direct impact on the evolution of AQMetrics products. That helps to further differentiate us from our competitors,” suggests Gibson.

“We continue to focus on evolving our solution set for clients. That has meant continuing to develop risk analytics and regulatory reporting. In the past year, we’ve focused on our risk management capabilities. In addition, we are working on building out our MiFIDII  services,” says Steve Barnes, VP of Technology.

 


Blog, MiFID II:Articles

Internationalization of Regulation – Part II

newyork-photoRecent amendments to the Investment Company Act (ICA) of 1940 have compounded regulatory hurdles for Europe-based hedge funds that conduct business in the United States.  Although hedge funds are typically able to avoid registration with the ICA under 3©1 exemptions, where the fund has less than 100 accredited investors, or 3©7 exemptions, where there are less than 499 qualified investors, a transformative U.S. regulatory regime presents new obstacles.

Accredited investors meet the following thresholds:

  • Make $200,000 a year or $300,000 a year jointly with a spouse
  • Have a net worth of $1 million individually or jointly with spouse
  • The Securities & Exchange Commission is considering higher limits

Qualified investors are defined as:

  • Persons with $5 million in investable assets
  • Public and private pensions funds with $25 million in investable assets
  • Nominees investing solely on behalf of qualified purchasers.

The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act epitomizes the new reporting and supervisory regime.  This piece of legislation has also closed key exemptions and now forces hedge funds with more than $150 million in regulatory assets under management (RAUM) in the United States to register as investment advisors, according to a 2016 report by accounting firm, Grant Thornton.

As an SEC registered investment advisor, hedge funds must also comply with the following requirements:

  • File disclosures on Form ADV
  • Designate a chief compliance officer
  • Maintain financial records to facilitate SEC examinations
  • Keep client assets with a qualified custodian

While European managers may think that adhering to the European Union’s Undertakings for Collective Investment in Transferable Securities (UCITS) law assures the compliance of their equity strategies with the ’40 Act, the U.S.’ tightening regulatory regime challenges that notion.  

Due to new reporting requirements announced by the Securities and Exchange Commission Chair Mary Jo White in 2014, foreign hedge funds must now deploy more compliance analytics, monitoring and disclosure resources to address a myriad of new risks perceived by U.S. regulators.  Instead of designating non-bank institutions as systemically important to the financial system, U.S. regulators are implementing more reporting mandates to make sure firms are properly managing risk, according to April 2016 guidance from the Financial Stability Oversight Council (FSOC).

In a 2015 SEC press release, Chair White articulated the goals of her reforms by saying that “investors will have better quality and greater access to information about their fund investments and investment advisers, and the SEC will have more and better information to monitor risks in the asset management industry.”

These ’40 Act amendments have also adopted several elements of European regulatory models and prioritized the following risk categories:

  • Portfolio composition and operational risks
  • Counterparty risk
  • Derivative exposure
  • Portfolio liquidity
  • Leverage exposure

As a result, UCITS-compliant fund managers may find that ’40 Act limits on position concentration and demands for enhanced portfolio diversification may invalidate certain equity strategies.  To circumvent these regulations fund managers may seek designation under the Securities Act of 1933, which regulates closed-end funds, or vehicles that typically issue a fixed of number of shares, and are implicitly more illiquid.  

More commonly, however, hedge fund managers will seek the 3©1 or 3©7 exemptions, which enable their alternative investment vehicles to allocate capital with significant leverage and make exotic and high-risk wagers. But, given that pensions are a primary institutional investor segment for alternative asset managers, particularly for larger AUM funds, these vehicles also fall under strict Employee Retirement Income Security Act (ERISA) legislation, magnifying reporting demands for European funds with American assets.   

And further complicating matters is the recent Memorandum of Understanding, signed by the U.S. Commodities Futures Trading Commission (CFTC) and the U.K. Financial Conduct Authority (FCA) in October.  The MOU aims to enhance transparency and the exchange of information between certain alternative asset managers with cross-border operations.

While the MOU only covers 20 firms registered with the CFTC as swap dealers, the internationalization of fund compliance is a growing trend that is certain to scale in its restrictiveness and scope, according to a July 2016 Boston Consulting Group report. Advanced EU reform initiatives like UCITS and the Alternative Investment Fund Managers Directive (AIFMD) may position European managers at an advantage relative to their peers in the U.S., with regards to stress test and audit compliance, but inevitable regulatory disruption demands an even more proactive compliance strategy.

Look no further than the BCG study, where one-third of their respondents answered that they were seeking better consolidation in risk reporting.  Another 40 percent said that their information systems were deficient and required upgrades.

Regulatory transformation has been a trend in the European investment industry since before the financial crisis and, in many ways, is more advanced than its counterpart in the United States.  But, with an increasingly global crusade to improve pre-trade compliance, analytics and reporting, transparency, IT system integrity and investor protection, it is clear that regulatory technology, or regtech, will assume a role of central importance.

To capture AUM in a lucrative American market, European alternative asset managers must embrace a secure and leading edge cloud solution that automates the supervision, capture and reporting of all position and portfolio data.  In a challenging market that pushed high-profile fund managers like Bain Capital, Fortress and others to liquidate certain funds or permanently shutter their operations in 2015, the right regtech asset is the best hedge against risk from the markets and SEC examiners as well.


Blog, MiFID II:Articles

MiFIDII Culture and Conduct – Consistency and Control

shutterstock_325251458

By Claire Savage, COO, AQMetrics

In light of the recent global financial crisis, and with MiFIDII fast approaching, the UK’s Financial Conduct Authority (FCA) along with other regulators in Europe, has been placing an increasing emphasis on culture and conduct. A number of FCA publications – including a dedicated Thematic Review – as well as recent speeches from the Bank of England[1], have referred specifically to why having the right culture and conduct is critically important to the industry as a whole.

It is clear that financial firms need to take this matter seriously. But how can culture be measured? How can firms build the necessary KPIs to monitor and improve it? And how can they leverage technology in this regard?

When measuring culture, there are three key elements that firms need to consider:

  • Remuneration policies
  • Treatment of clients
  • Approach to risk management

Remuneration

In their Thematic Review, the FCA discussed various issues around performance-related payments, bonuses and remuneration rewards. But another area that firms should consider is how to achieve greater transparency around the monitoring and reporting of commission structures throughout the supply chain.

One way to achieve this is through rules-based fee management where, in the event of a breach, alerts are triggered and reported at a supervisory level. For many firms, this will mean examining legacy and long standing relationships in their supply chain to ensure that rules are being conformed with. The net benefits will be positive however; the greater the level of granularity disclosed, the higher degree of comfort both investors and regulators will have.

Fair treatment of clients

Organisational culture is not just about internal-facing matters such as remuneration, of course. Firms also need to look outwards towards their clients and ensure they are treating them fairly.

From a buy-side perspective, investor protection is key. In particular, investment firms dealing with retail customers need to ensure that exact costs and charges on distributions are sent to the investors through the appropriate PRIIPs/KID documentation. Any rules-based fee management module implemented by firms should monitor for compliance with these best practices, so that they can prove to investors and regulators that a transparent, supervised, automated and audited approach exists.

Risk management

One of the most significant aspects of organisational culture is how the firm approaches risk management at every level: the operational layer; the supervisory layer; and most strategically, at the board level.

Board members should always be open to challenges about their approach to risk management, encouraging a pre-emptive approach to resolving any issues or perceived areas of weakness within the firm. It is also good practice for them to regularly engage in proactive conversation with regulators.

Risk silos within the firm are best avoided. Firms cannot afford to have ‘micro-climates’ within the organisation where disparate approaches to risk management can occur. Where firms are investing in technology for risk and compliance management, this can be an ideal opportunity to ensure a standardised, cohesive framework is put in place, to provide greater insights into the business.

Taking a holistic approach

Many investment firms today maintain multiple systems for measuring different types of risk, such as market risk, liquidity risk, credit risk, portfolio risk, operational risk, and so on. These are typically a mix of third-party packages, in-house built systems and, in many cases, Excel spreadsheets.

This lack of consistency and control makes it challenging for such firms to instil good culture and to maintain the right levels of conduct within their organisations. In order to achieve better outcomes, firms need to take a more holistic approach to risk management and reporting. Fortunately, technology now exists that can provide the requisite monitoring, detection and deep data analytics of different types of risk across the firm, without the wholesale replacement of existing legacy systems.

Bringing it all together

So how can firms gather this ‘golden source’ of data? In reality, most firms are not going to have a single hub where all their data is flowing through. There would typically have multiple databases, multiple administrators, multiple data formats and so on.

The answer lies in cloud-based platforms that are able to rapidly extract, transform and load all of these disparate data sources into a common, normalised format, contextualise that data and then run the necessary calculations and analytics on it. This not only provides the firm with the required holistic view of its risk, but also can satisfy a wide range of regulatory reporting requirements.

One of the key advantages of a platform such as this is that it is not a ‘black box’ from a niche risk management supplier, providing output with no detail of how that output has been created. Because the platform accesses source data, the business workflow matches the firm’s business operating model, providing the information needed at each of the three levels within the organisation: operational; supervisory; and board.

This kind of platform not only makes things easier when a regulator comes to audit, but it also enables data to be understood at every level in the organisation.

The result? Better culture, better conduct, and better outcomes for the firm. And this shift towards self-regulation, whereby it becomes integral to a firm’s core values and culture to conduct operations in a controlled, ethical and transparent manner, can lead directly to a range of good outcomes, including increased confidence in the market, better customer experience and stronger customer loyalty.

[1] In May 2016, Andrew Bailey of the BoE stated “the culture of firms and the people that make them up – and of course therefore the culture of industries insofar as it can be generalised – is of the utmost importance to financial regulators. Culture matters a great deal.”