News

Buzz

AQMetrics expands into North America

Delighted to announce the official opening of our first U.S. Office.

US Office


Blog, UCITS

New UCITS risk reporting requirements from the CSSF

On 22 April 2016, the CSSF released instructions on the new reporting template related to the risk and risk management of UCITS funds. The first report must be filed by 16 May 2016.

The reporting applies to those UCITS that either have more than €500 million total net assets (TNA), or that use the VaR method for calculating global exposure and have an average leverage greater than or equal to 250% of the UCITS’ total net assets.

The following is a list of the main information to be submitted:

  • leverage per risk factor (sum of notional amounts; optionally: commitment)
  • sum of notional amounts per derivative category
  • % liquidity per time bucket
  • % shareholdings of the UCITS per sector classification
  • debt portfolios only: % TNA per rating class (1, 2, 3, …10)
  • debt portfolios only: % TNA per credit spread bucket
  • % TNA per type of credit-linked instruments
  • minimum/maximum/arithmetic average use of EPM techniques
  • collateral from EPM derivatives
  • details of the largest counterparty exposures
  • collateral from OTC derivatives
  • new stress tests / sensitivities

This information has to be continually submitted to the CSSF, so efficiency and a systematic approach to the reporting is key.

For more information on the reporting requirements see https://www.cssf.lu/en/supervision/ivm/ucits/legal-reporting/

 


Buzz, Form PF

AQMetrics is ready for PFRD Release 2016.04

AQMetrics Form PF reporting application is now updated to comply with recent Form PF changes (PFRD Release 2016.04) which consist of more onerous granular reporting requirements and a new version of the Form PF xml schema. These Form PF changes (officially  “PFRD Release 2016.04”) include rearranged question numbers, an update to data types, a removed sub-asset class, and a new checkbox to indicate CFTC compliance.

Specifically:

    • Question 5 has a new tag “NFAFundCFTCComplianceFlag”
    • Data types were updated for Questions 20, 25, 28, 32, 40, 46 and 50
    • A sub-asset class was removed from Question 35
    • Questions 56 and 57 were removed
    • Questions 58 – 64 were renumbered to 56 – 62
    • Questions 63 and 64 were added

The changes are effective from the 16 April 2016.


Press

AQMetrics to expand into US

sundaytimes

The Sunday Times published an article on aqmetrics 2016 funding round on the 21 February 2016, noting:

AQMETRICS, a software company that helps investment managers meet Central Bank reporting guidelines, has raised $3.25m (€2.9m) from Frontline Ventures, Bluff Point Associates, and Enterprise Ireland.

The company, which was founded by Geraldine Gibson three years ago, is planning to hire 30 new staff and open an office in New York, where demand for its software has been growing rapidly.

“The product we have delivered into Europe is suitable for the US marketplace and is a solution that has been proven to work,” said Gibson. US funds using the software in Europe encouraged Gibson to bring the software across the Atlantic.

“The reason for taking the funding is so we can achieve scale in the US,” she said.

Gibson established her company after a career working in the financial and technology sectors.

See Vincent Ryan’s article on aqmetrics funding round in the Sunday Times on 21 February 2016 here.


Press

AQMetrics raises $3.25m from International Investors to Build Team & Expand to US

DUBLIN, February 16, 2016 /PRNewswire/ 

AQMetrics, an integrated risk management, regulatory compliance and surveillance software provider, today announced that it has closed its first external funding round. The $3.25million round consists of investors Frontline Ventures, Bluff Point Associates, and Enterprise Ireland.

(Photo: http://photos.prnewswire.com/prnh/20160216/333606)

AQMetrics was founded by Geraldine Gibson in 2012 when she noted that Investment Managers were finding themselves in an era of great change, making risk management and compliance exceptionally complicated. AQMetrics offers a simple, innovative and effective way to address regulatory risk and compliance. The firm delivers an ultra-fast, high quality cloud based platform that saves its clients time and money.

AQMetrics’ current team of 12 has been dedicated to building AQMetrics’ platform for the last three years. As a result, AQMetrics software as a service has been used by both EU and Non-EU Investment Firms to submit regulatory filings to regulators in Denmark, Sweden, Norway, the UK, Germany and Ireland. With a fast-growing client demand, the team is capitalising on the momentum: AQ Metrics will be hiring 30 roles in Ireland within the next 12 months and establishing a New York office in the next six months.

“At AQMetrics we saw that a very clear gap existed for a technologically advanced cloud based platform to simplify regulatory complexity in real time. We believe that AQMetrics will play a transformative role in the way Investment Managers meet their global regulatory obligations. The addition of Frontline Ventures and Bluff Point Associates as investors will help drive AQMetrics’ ambition to build on its existing success as a leader in the European RegTech space by establishing a US presence,” said Geraldine Gibson, CEO of AQMetrics.

Tom McInerney, CEO of Bluff Point Associates said, “We are very excited to partner with Geraldine and the team at AQMetrics to expand its growth opportunities here in the US. We see tremendous upside for Fintech firms in the ever increasing world of regulation, risk management and compliance reporting. This will be Bluff Point’s first investment in Ireland, where we have strong personal links and are delighted to have them join our growing portfolio of financial and healthcare technology companies.”

Frontline Ventures partner Shay Garvey said, “We are really excited to back such an ambitious founder – Geraldine had her eye set on international markets from the start. Her dedicated team is testament to the innovative RegTech product that AQMetrics has built.”

About AQMetrics
The AQMetrics platform integrates pricing, risk and regulatory solutions into a single offering. AQMetrics helps its clients stay compliant while eliminating errors, reducing downtime, avoiding risks and minimizing regulatory breaches. AQMetrics provides clients with end to end data management solutions, from data preparation through to reporting to comply with existing and future financial services regulations. AQMetrics delivers turnkey Pre and Post Trade Monitoring, UCITS Rules Monitoring, AIFMD Risk Management and Annex IV Reporting, AML/KYC and UBO monitoring, EMIR Reporting and OPERA Reports. Using AQMetrics firms can: track investor activity, orders, executions and holdings from pre to post trade; receive risk alerts and notification of compliance breaches; and gain access to a dedicated team of industry specialists who assist in the simplification of regulatory risk and compliance.

About Bluff Point Associates
Bluff Point Associates is a private equity firm based in Westport, Connecticut. Bluff Point actively invests in the healthcare information services sector as well as information services companies supporting the banking, trust, securities, retirement and wealth management sectors of the financial services industry. Bluff Point’s team collectively has decades of experience in recognizing a company’s growth potential and working with its management to reach that potential. For more information regarding Bluff Point, visithttp://www.bluffpt.com.

About Frontline Ventures
Frontline Ventures is an early-stage venture capital fund based in London and Dublin, with a focus on European enterprise SaaS startups. Frontline is focused on the needs of the new wave of technology entrepreneurs – investing in the best teams that build capital-efficient businesses in high-growth markets. For more information, visit http://www.frontline.vc

–        Ends –

Photo:
http://photos.prnewswire.com/prnh/20160216/333606

Photo: http://photos.prnewswire.com/prnh/20160216/333606
http://photoarchive.ap.org/
Photo: http://photos.prnewswire.com/prnh/20160216/333606
http://photoarchive.ap.org/
AQ Metrics

CONTACT: For media inquiries, an interview, or extra images, please contact Suzanne McGann. E-mail: suzanne.mcgann@aqmetrics.com, Tel: +353-(1)-6292607


Press

AQMetrics connects to DTCC trade repository

DUBLIN, February 11, 2016

AQMetrics, a leading provider of integrated risk and compliance software for the investment management industry, announced today a new connection to The Depository Trust & Clearing Corporation’s (DTCC) Global Trade Repository (DTCC GTR), the leading provider of trade reporting services in Europe.

“AQMetrics (AQM) provides clients with end to end data management solutions, from data preparation through to reporting to comply with existing and future regulation. AQM’s working relationship with DTCC’s GTR will help bring efficiencies to mutual clients with reporting obligations under European Market Infrastructure Regulation (EMIR) and in the future, Markets in Financial Instruments Regulation (MiFIR)” said Geraldine Gibson, CEO, from AQMetrics.

AQMetrics delivers turnkey Pre and Post Trade Monitoring for Reg NMS, OATS and OTS reporting, UCITS Rules Monitoring, AIFMD Risk Management and Annex IV Reporting, AML/KYC and UBO monitoring, EMIR Reporting and OPERA Reports. Using AQMetrics firms can: track investor activity, orders, executions and holdings from pre to post trade; receive risk alerts and notification of compliance breaches; and gain access to a dedicated team of industry specialists who assist in the simplification of regulatory risk and compliance for Investment Managers.

DTCC’s GTR is dedicated to bringing greater transparency, risk mitigation and cost efficiency to the global OTC derivatives market. Clients with EMIR reporting requirements can achieve efficient and cost-effective compliance with these evolving regulations leveraging the GTR service.

“We are delighted to be working with DTCC GTR,” said Geraldine Gibson, CEO at AQMetrics. “Recently we have seen increased client demand for automated end to end EMIR reporting; and as a result we recognise the need to provide our clients with even more choice from our ‘One Stop’ shop.

– Ends –


Blog, Market Data

The latest methodology for the valuation of derivative liabilities

Today the European Banking Authority (EBA) published the final draft Regulatory Technical Standards (RTS) on the methodology for the valuation of derivative liabilities for the purpose of bail-in in resolution. These draft RTS have been developed according to paragraph 5 of Article 49 of Directive 2014/59/EU (BRRD). These standards provide EU resolution authorities with a methodology for the valuation of derivative liabilities of credit institutions placed under resolution and ensure that the discipline brought in by the new bail-in tool can effectively be extended to these liabilities too.

Derivative counterparties will be given the opportunity to provide evidence of commercially reasonable replacement trades within a certain deadline; if they do not exercise this option, then resolution authorities will apply a statutory methodology supported by observable market data or other relevant information.

Resolution authorities may establish the value of derivative liabilities as on the close-out date or as on the date when a price is available in the market. For centrally cleared derivatives, the final draft RTS provides for a process that relies in principle on the Central Counterparty (CCP) default and takes into account the applicable regulatory framework under the EU Market Infrastructure Regulation (EMIR)

You can find the RTS on valuation of derivatives here


AML, Blog

Report on Anti-Money Laundering/Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Funds Sector

On 18th November 2015, the Central Bank of Ireland (“CBI”) issued a report entitled: Report on Anti-Money Laundering/Countering the Financing of Terrorism and Financial Sanctions Compliance in the Irish Funds Sector(the “Report”). The report is based on site inspections carried out by the CBI over the course of 2014.

All Funds and Fund Service Providers should carefully consider the issues raised in the report, and to use the report to inform the development of their AML/CFT and FS frameworks.

What are the main issues raised in the report?

The Report identifies that more work is required by firms in Ireland to effectively manage money laundering/terrorist financing risks.

The Report found insufficient evidence of adequate and timely risk assessments . The CBI expects that risk assessments be conducted and reviewed at least annually, and that these assessments include all risk categories. The risk assessment should document controls in place to mitigate risks with action plans to address any gaps. Policies and procedures should be kept up to date and reflect any changes in the risk assessment.

The Report highlights that, while Funds may delegate many of their AML/CFT functions, they remain responsible for
ensuring compliance and oversight of these outsourced activities. The CBI expects that such oversight includes a review of the Administrator’s policies and procedures along with assurance testing of AML/CFT processes, for example, through sample testing of investor files.

The Report identifies a number of issues in relation to investors including:

  • Inappropriate application of SCDD, and application of SCDD without supporting evidence justifying the approach;
  • Deficiencies around beneficial owner information and verification;
  • Failures in the management of PEPs;
  • Failures of Fund Boards to retain adequate control over sign off of relationships;
  • Failure to document source of funds and source of wealth;

With regards to Customer Due Diligence (“CDD”), the CBI found that arrangements with third parties to conduct elements of CDD were lacking required conditions. The CBI expects that policies and procedures set out circumstances under which a Fund would cease to provide services or discontinue a relationship due to an investor’s failure to provide CDD documentation. The Report is clear that the blocking of additional subscriptions to a Fund does not constitute the discontinuation of a business relationship.

The Report noted that not all Board members engaged in on-going AML/CFT training and outlines the CBI’s expectation that all persons involved in the conduct of the business (including staff at outsourced service providers) are provided with AML training, and that adequate training records for all staff are retained.

How can AQMetrics Help?

AQMetrics software is used by Fund Managers to spot check their outsourced AML/CFT and FS functions. AQMetrics training is delivered over the web to ensure that all Board members receive on-going AML/CFT training.

If you would like to discuss AQMetrics AML/CFT and FS services or have any queries related to AQMetrics in general, please contact Lorna Devlin +353 1 6292607


AIFMD, Blog

Important Update: AIFMD Annex IV reporting for Q4 2015

The Irish regulator, the Central Bank of Ireland (CBI), has changed its policy and will require US and other non-EU alternative investment fund managers (non-EU AIFMs) to make “Annex IV” reports in respect of master funds if one or more of that master fund’s feeder funds are marketed in Ireland.  Such reporting will become mandatory from the reporting period beginning on 01 January 2016. For quarterly reporting AIFMs, the report will be due to be submitted by 30 April 2016. Non-EU AIFMS are, however, encouraged by the CBI to include available information in respect of non-EU master AIFs in their reports for the reporting period ending on 31 December 2015 (which, must be submitted by 31 January 2016).

Who does this change affect?

US and other non-European AIFMs of alternative investment funds (AIFs) who market a non-European feeder AIF into Ireland under the national private placement regime (NPPR) established under Article 42 of AIFMD but do not market the corresponding master are impacted.

What is the change?

Annex IV reports to the CBI have needed to be in respect of the feeder AIF only. With effect from the end of this month, the CBI will require Annex IV reports to be made in respect of the master fund.

What should managers do now?

Non-EU AIFMs impacted by these changes will have to put in place systems and procedures to complete the Annex IV reports in respect of master AIF-level data and report the same by the end of January 2016. Because the obligation to make an Annex IV report is triggered by marketing, non-EU AIFMs which have not attracted investment should consider whether or not they wish to retain the ability to market the relevant feeder AIFs in Ireland under that country’s NPPR or whether they should retract their registration(s).

How can AQMetrics Help?

The good news is that AQMetrics has a turnkey solution for Annex IV reporting, which is used by many EU alternative investment fund managers to comply with AIFMD regulations. AQMetrics makes it simple for the US and non-EU managers to comply with the regulations in accordance with the Q1 2016 deadline

 


AIFMD, Blog

The latest version of the AIF Rulebook is published on 04 December 2015

On 4 November 2015, the Central Bank of Ireland published the latest version of the AIF Rulebook. The AIF Rulebook is the Central Bank  of Ireland’s rulebook in relation to AIFs which contains chapters concerning Retail Investor AIF, Qualifying Investor AIF, AIF Management Companies, Fund Administrators, Alternative Investment Fund Managers and AIF Depositaries.

The latest Rulebook can be found here.


Press

aqmetrics CEO on being part of the FinTech Revolution

Read AQMetrics CEO, Geraldine Gibson, on being part of the Fintech revolution Here


Best Execution, Blog, MAD II

ESMA Publishes MAD/MAR Q&A

The European Securities and Markets Authority (ESMA) has published a Q&A document regarding the implementation of the Market Abuse Regulation.

The purpose of the document is to promote convergent implementation and application of the market abuse regime. The document is aimed at national competent authorities, investors and market participants to ensure supervisory convergence by providing clarity on existing market abuse requirements, rather than creating an extra layer of requirements.

The Q&A currently covers the following issues:

  1. Disclosure of inside information related to dividend policy; and
  2. Disclosure of inside information related to Pillar II requirements.

View ESMA’S MAD / MAR Q&A here


Best Execution, Blog, MiFID II

What MiFID II means for Investment Firms

On 3 January 2017, the new MiFID II regime will come into force. This wide-ranging piece of legislation covers retail and wholesale investment firms and trading venues and may affect a significant number of the business activities of investment firms within its scope.

 

This article is the first in a series where we example ‘What MiFID II means for Investment Firms’.

 

Revamped Liquidity Assessment

To provide greater transparency in the non-equities markets so investors are adequately informed about the real level of trading opportunities, ESMA has introduced a revamped liquidity assessment. Homogeneous classes of instruments are created by dividing them into asset classes, sub-asset classes and, in most cases, sub-classes. Criteria specifying the basis for segmenting are listed under the most granular level. For most classes, liquidity is calculated annually, using the average daily notional amount and the average daily number of trades, and measured against set thresholds.

Liquidity Assessment for Derivatives

To maintain current market practice a different approach is proposed for equity derivatives which classifies the majority of equity derivatives as liquid.

Furthermore, ESMA proposes all foreign exchange derivatives are deemed illiquid initially and reviewed when more reliable data is available.

Liquidity Assessment for Bonds

Bond liquidity will be calibrated on an instrument by instrument basis (known as IBIA) using three cumulative criteria:

  1. The average daily notional amount;
  2. The average daily number of trades,
  3. And the minimum number of days on which the bond traded over a set period.

A bond’s liquidity will be re-assessed at the end of every quarter, based on the last 3-month’s activity, and newly issued instruments will be deemed to be liquid or illiquid according to their issuance size for the first quarter.

The treatment of packaged transactions

Packaged transactions comprise of several contingent components. Where at least one component of the package is above the LIS or SSTI thresholds, or deemed illiquid, a deferral from post-trade transparency requirements may be granted. There is not a corresponding waiver from pretrade transparency.

Transaction reporting

MiFID II upgrades the transaction reporting regime. ESMA specified that transactions and instrument reference data should be reported in accordance with ISO 20022 for consistency and introduced new rules to govern how EEA branches of non-EEA firms should transaction report.

Best execution

To improve investor protection by increasing transparency on where investment firms execute client orders and on the execution quality achieved, firms must publish annual details of the top five execution venues for each class of financial instrument and the quality of execution obtained

Timeline for implementation

Timeline


Blog, UCITS

The Central Bank UCITS Regulations will come into effect on 1 November 2015

The Central Bank has today, 5 October 2015, published the Central Bank UCITS Regulations and feedback statements on CP77 – Consultation on publication of UCITS Rulebook and CP84 – Consultation on adoption of ESMA’s revised guidelines on ETFs and other UCITS issues.

The Central Bank UCITS Regulations consolidate into one location all of the requirements which the Central Bank imposes on UCITS, UCITS management companies and depositaries of UCITS.  They supplement existing legislative requirements, in particular the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011.  The Central Bank UCITS Regulations will come into effect on 1 November 2015.


Press

AQMetrics announces agreement with Exchange Data International

Thursday, October 01, 2015

Dublin, Ireland, October 01, 2015 –(PR.com)– AQMetrics, a leading provider of integrated risk and compliance software for the investment management industry, announced today an agreement with Exchange Data International (EDI), a well-established provider of reference and corporate actions data. EDI will provide Market and Corporate Actions data to AQMetrics clients through AQMetrics cloud based risk and compliance software.

AQMetrics delivers turnkey Pre and Post Trade Monitoring for Reg NMS, OATS and OTS reporting, UCITS Rules Monitoring, AIFMD Risk Management and Annex IV Reporting, AML/KYC and UBO monitoring, EMIR Reporting and OPERA Reports. Using AQMetrics firms can: track investor activity, orders, executions and holdings from pre to post trade; receive risk alerts and notification of compliance breaches; and gain access to a dedicated team of industry specialists who assist in the simplification of regulatory risk and compliance for Investment Managers.

In addition to EDI Market Data, AQMetrics further added EDI’s Corporate Actions Data to its software. With data sourced directly from all of the world’s major stock exchanges, the Worldwide Corporate Actions service provides up-to-date and accurate equity-based corporate actions information, and provides coverage on over 150 International Exchanges, with detailed announcements on 54 corporate actions event types. EDI’s Fixed Income Corporate Actions Service follows corporate actions events on nearly 400,000 bonds from 100 countries and Supranationals. In addition to interest payments (both fixed and floating), the fixed income service covers another 40 event types. The data is sourced from stock exchanges, central banks, ministries of finance, paying and transfer agents.

“We are very excited about our new relationship with AQMetrics, as it brings EDI’s data to a new audience,” said Kevin Brady, Executive Director for Exchange Data International. “This relationship demonstrates EDI’s commitment to building strong relationships to provide the industry with high standard services.”

“We are delighted to be working with EDI in order to expand the market and corporate actions data available to our clients through AQMetrics software,” said Geraldine Gibson, CEO at AQMetrics. “Recently we have seen increased client demand for consolidated market and corporate actions data from multiple market data sources; and as a result we recognise the need provide our clients with even more choice from our ‘One Stop’ shop.

For more information on the services provided by both companies contact either Kevin Brady (k.brady@exchange-data.com) at Exchange Data International or AQMetrics at info@aqmetrics.com

About AQMetrics
AQMetrics delivers integrated compliance and risk management software, and value added services. AQMetrics cloud software provides financial services firms with solutions to systematically meet their AIFMD, UCITS, MiFID and EMIR challenges. For media inquiries please contact Lorna Devlin at +353 1 6292607.

About Exchange Data International
Exchange Data International (EDI) helps the global financial and investment community make informed decisions through the provision of fast, accurate timely and affordable data reference services.

EDI’s extensive content database includes worldwide equity and fixed income corporate actions, dividends, static reference data, closing prices and shares outstanding, delivered via data feeds and the Internet.

The firm covers all major markets with special emphasis on emerging and frontier markets that are Africa, Asia, Far East, Latin America and Middle East.

EDI is based in London, with offices in New York and India and Morocco.

For more information about EDI visit www.exchange-data.com

Contact Information:
Exchange Data International
Anais Bresle
+44 207 324 0050
Contact via Email
http://www.exchange-data.com

Read the full story here: http://www.pr.com/press-release/639567


Blog, Cyber Security

The management of Cyber Security Risks within the Investment Firm and Fund Services Industry

Under investment in Technology over the past seven years has left Investment Firms fearful that they are vulnerable to some form of cyber attack, but does the Board and C suite know what they really need to do, how much is really enough and who they can trust to help them get it right? Let’s face it, all financial services firms irrespective of size are exposed to cyber risk, however acting under fear is not the answer. A well thought out cyber security strategy will help firms remain attractive to investors and robust in protecting their reputation, a knee jerk reaction to the fear of a cyber security threat could do just the opposite.

Summary observations from the U.S. Office of Compliance Inspections and Examinations (OCIE) examinations of registered broker-dealers and investment advisers, conducted under the Cybersecurity Examination Initiative, announced April 15, 2014 clearly shows that OCIE is investing time and resources on analyzing the cyber security risk area among Investment Management firms. The recently published Thematic Review of the Management of Operational Risk around Cyber-Security within the Investment Firm and Fund Services Industry by the Central Bank of Ireland further shows that regulators are focused on Cyber-Security.

So where do you start with defining your firms Cyber Security Policy? A good place to begin is the U.K. Governments Cyber Essentials Scheme. Review your cyber security policies under three main headings –  people, processes and technology to ensure that your firms approach to cyber security is systematic and robust.


Blog, UCITS

UCITS V – Implications and Opportunities

What does the arrival of UCITS V in 2016 mean for fund managers? Are fund managers facing into a major compliance exercise? To help you decide if your compliance programme requires an overhaul for UCITS V, we examined the key provisions of UCITS V and the implementation timetable.

UCITS have long been regarded as a high quality fund product, both outside the EU and in the EU. UCITS V focuses on improving investor protection via the introduction of three key definitions:

  • The tasks and liabilities of depositaries for asset safekeeping
  • Manager remuneration rules
  • How breaches of UCITS rules should be punished with fines and sanctions

So what are these new UCITS rules? The “level 2 measures” which add the detailed rules are yet to be released but we know that they will consist of the EU commissions “delegated acts” and the ESMA guidelines on fund manager remuneration. Both to be published in the second half of 2015. After which the FCA, CBI and CSSF will all amend their rules to accommodate UCITS V up until implementation in March 2016.

UCITS V increases the fiduciary responsibilities of UCITS managers. New UCITS rules on remuneration are designed to reduce excessive risk taking. The “level 1” remuneration rules set out in the Directive are similar to those in AIFMD. How these rules will be applied in practice remains to be seen in the second half of 2015 when the Guidelines are published by ESMA.

What can UCITS fund managers do today to prepare for UCITS V?

  • Perform gap analysis on current depositary agreements
  • Identify collateral and cash balances not in the depositary network
  • Develop remuneration policies and procedures to comply with UCITS V
  • Prepare fund documentation – investor disclosures, prospectus, KIIDs
  • Consider the implications of the sanctions provisions and ensure that an adequate risk management system is in place to detect the UCITS breaches

Blog, SEC

SEC proposes significant changes to Buy Side Regulatory Reporting

On May 20, 2015, the Securities and Exchange Commission (“SEC”) proposed rules, forms and amendments under the Investment Company Act of 1940 (the “1940 Act”) and related regulations (together, the “Proposed Amendments”) that would impose new and expanded disclosure and reporting obligations on registered investment companies (“funds”).

The SEC proposes two new reporting forms. Form N-PORT (this would replace current Form N-Q) would require monthly reporting of fund portfolio holdings and detailed information about funds’ derivative usage, risk metrics related to debt securities, counterparty exposure and securities lending transactions, among other things. Form N-CEN (this would replace current Form N-SAR) and require annual reporting of census data.

The new reporting requirements are intended to assist the SEC staff with assessing funds’ regulatory compliance, identifying funds for examination, pursuing enforcement actions against funds, and monitoring risks of individual funds, as well as industry-wide trends and risks.

Fund firms are likely to incur increased costs as a result of the Proposed Amendments, which may be significant given the detailed nature of the information being requested and the frequency with which funds will be required to file.

The Proposed Rule Changes

The Proposed Amendments are published on the SEC’s website and in the Federal Register. The public comment period for the proposals ends on August 11, 2015 (i.e., 60 days after publication in the Federal Register).

Form N-PORT

  • Funds (other than money market funds (“MMFs”) and small business investment companies (“SBICs”)) would be required to report portfolio-wide and position-level holdings data and certain risk metrics monthly, in a structured data (“XML”) format.
  • Form N-PORT would replace current Form N-Q, which funds currently file as of the end of each first and third fiscal quarter.
  • Form N-PORT would require reporting of the portfolio holdings information currently contained in Form N-Q reports, but would also impose significant new reporting requirements, including: (1) quantitative risk metrics data for funds with at least 20% notional debt exposure; (2) detailed information about the characteristics and terms of each derivatives contract; (3) information about liquidity, pricing and fund flows; and (4) information about securities lending transactions and counterparty exposures.
  • Form N-PORT would be filed monthly, but only the information reported for the third month of a fund’s fiscal quarter would be made publicly available, and only after a 60-day delay.
  • Smaller funds and fund groups would have 30 months after the effective date to comply, while larger funds and fund groups would have 18 months after the effective date to comply.

Form N-CEN

  • Form N-CEN would require funds (other than face amount certificate companies) to report a wide variety of census information annually, in XML format.
  • Form N-CEN would replace current Form N-SAR, which funds file semiannually. Form N-CEN would require much of the information reported on Form N-SAR while replacing items that are outdated or no longer informative with new reporting items.
  • New reporting items include information about investments in controlled foreign corporations, securities lending transactions and the identity of a fund’s pricing vendors.
  • Funds would have 18 months after the effective date to comply.

Other Proposed Rule Changes Related to Funds’ Reporting

  • Amendments to Regulation S-X: Amendments to Regulation S-X would standardize and enhance derivatives holdings disclosures in fund financial statements, as well as other disclosures related to liquidity and pricing of investments. Such disclosures would be placed prominently in, rather than in the notes to, the financial statements. Funds would have 8 months after the effective date to comply.
  • Rule 30e-3 (E-delivery of Shareholder Reports): Rule 30e-3 would permit (but not require) funds to provide shareholder reports and quarterly portfolio holdings online, unless a shareholder elects to receive paper copies via mail. Currently, funds can deliver periodic shareholder reports electronically only if a shareholder has affirmatively requested such form of delivery. Funds would be able to rely on the Rule immediately after the effective date but would have to provide shareholders 60 days’ advance notice that they intend to rely on the Rule.

Use of Derivatives

Mary Jo White, Chair, Securities and Exchange Commission, in her Address at The New York Times DealBook Opportunities for Tomorrow Conference (Dec. 11, 2014), stated that fund reporting obligations have not adequately kept pace with emerging products and strategies, noting that the SEC’s “rules do not require standardized reporting for many types of derivatives used by funds today. This is a clear gap, particularly given the growth in the volume and complexity of derivatives used by funds.” The SEC states in the Release that the increased use and complexity of derivatives, as well as the popularity of so-called “alternative” funds, has led it to “create a more detailed, uniform, and structured reporting regime for derivatives.”

Form N-PORT would require a fund to disclose certain characteristics and terms of each derivatives contract, as well as the exposures the derivatives create or hedge in the fund, including exposures to currency fluctuations, interest rate shifts, prices of the underlying asset, and counterparty credit risk. Funds would be required to report detailed information regarding their use of derivatives, including the category of derivative (e.g., forward, future, option, etc.), the identity of the counterparty, and the relevant terms and conditions of each derivative (e.g., payoff profile and a description of the underlying reference instrument). Form N-PORT would also require funds to report the delta of an option, which is the ratio of the change in the value of the option to the change in the value of the reference instrument. Form N-PORT would also require funds to report monthly net realized gain or loss, and net change in unrealized appreciation or depreciation, attributable to certain derivatives (including commodity contracts, credit contracts, equity contracts, foreign exchange contracts, and interest rate contracts).

In addition, the proposed amendments to Regulation S-X would require new, standardized disclosures in financial statements regarding fund holdings. Regulation S-X currently does not prescribe specific information for most types of derivatives. Such proposed disclosures would now include fund holdings in open futures contracts, open forward foreign currency contracts, and open swap contracts, and additional disclosures regarding fund holdings of written and purchased option contracts. The proposed amendments would also require that such disclosures be placed prominently in the financial statements, rather than in the notes, per the current requirement.

Quantitative Measurements of Risk Metrics

Proposed Form N-PORT would require reporting of certain quantitative measurements of risk metrics not previously reported by all funds. Unlike financial statements, which are backward-looking and static, the quantitative measurements of risk metrics data are forward-looking and measure data over a range of potential scenarios.

Form N-PORT would require funds to disclose data on a portfolio-level basis, as well as on position-level bases, with respect to their exposure to particular types of investments (e.g., debt securities, repurchase and reverse repurchase agreements, and securities lending transactions). The new information to be collected would measure a fund’s exposure and sensitivity to changing market conditions, such as changes in asset prices, interest rates, credit spreads, and market volatility, as well as assess liquidity risks and counterparty risks in relation to such changing market conditions. In addition, such risk metric calculations also may assist the SEC in assessing to what extent a fund’s exposure to price movements is leveraged through borrowings or derivatives.

Form N-PORT would require a fund that invests in debt instruments, or in derivatives that provide exposure to debt instruments or interest rates, representing at least 20% of the fund’s notional exposure to provide a portfolio level calculation of duration and spread duration across the applicable maturities in the fund’s portfolio. For both duration and spread duration, the SEC proposes to require that funds provide the change in value in the fund’s portfolio from a 1 basis point change in interest rates or credit spreads.

The SEC also proposes to require disclosure of risk measures at the investment level for options, as discussed above, and convertible bonds. Funds would be required to disclose for each convertible security the conversion ratio, information about the asset into which the debt is convertible, and the delta (i.e., the ratio of the change in the value of the option to the change in the value of the asset into which the debt is convertible).

Funds would be required to provide position-level information regarding their counterparties with respect to securities lending, repurchase agreements and reverse repurchase agreements, as well as over-the-counter derivatives transactions. The SEC would use the data to assess both individual and multiple fund exposures to a single counterparty.

Form N-PORT also would require information about liquidity risk by, for example, requiring funds to provide information about the market liquidity and pricing of portfolio investments, as well as information regarding fund flows, which is intended to highlight liquidity pressures a fund might experience due to redemption activity.

In addition to the information required by Form N-PORT, in the Release, the SEC noted that “the additional census-type information not currently collected by Form N-SAR would improve the [SEC] staff’s ability to carry out regulatory functions, including risk monitoring.” Regulation S-X, as proposed, would also now require disclosure regarding liquidity of investments.

 


AML, Buzz

AQMetrics is now offering an Anti-Money Laundering (“AML”) and Money Laundering Reporting Officer Solution (“MLRO”)

Investment Funds established in Ireland are required to appoint MLRO. The MLRO is responsible for ensuring the presence of controls and procedures to prevent money laundering. The MLRO will assess the controls and AML operations completed, ensuring they are meeting required regulatory and management standard and report to the board of directors.

AQMetrics can accepted outsourcing of the AML work which includes the following operations:

• Account On Boarding

• AML Investigator Service

• AML Analyst Service

 AML

 

AQMetrics will appoint Senior Staff to act as MLRO and duties will include:

 

• Independent review of system and procedures as required
• Reporting of Suspicious Transactions (STR)
• Provision of AML training as required
• Reporting to Board as required

 

If you require further support with your AML or MLRO undertakings, feel free to call Lorna in London or Tara in Dublin:

Lorna Devlin/ +44 207 8872624 / lorna.devlin@aqmetrics.com

Tara Gordon / +353 1 6292607 /tara.gordon@aqmetrics.com


AML, Blog

A Brief Overview of the Fourth EU Money Laundering Directive

On 5 June 2015 a directive on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing (the “4th Directive”) was published in the Official Journal of the European Union (“EU”).  The Fourth EU Money Laundering Directive (the “4th Directive”) will come into force on 26 June 2015.The deadline for member states to transpose the requirements is 26 June 2017.

Below we summarise the parts of this new Directive which will be relevant to Irish investment funds.

Risk Assessments

Under the 4th Directive funds will be required to risk assess each client individually irrespective of the client size or make up. These risk assessments now require reviews of the risks posed by customers, geographies, products, services, transactions and/or delivery channels. Furthermore, controls and procedures to mitigate these risks will be a necessity across investment funds. The risk assessment and CDD must be fully documented and explain the risk assigned to a client.

Customer Due Diligence (“CDD”)

Third parties can still perform CDD under the 4th Directive, however there is an explicit prohibition on relying upon third parties established in high risk third countries (as identified by the European Commission unless the third party is a branch or majority-owned subsidiary of an EU-based obliged entity, and is subject to group wide policies and procedures.

Beneficial Ownership Registers

With the 4th Directive come the Beneficial Ownership Registers. Each Member State will be required to create a central register where the beneficial ownership of corporate and other legal entities will be recorded. Entities will be required to hold information on their beneficial ownership, and in turn this information is recorded in the central register. That said funds will not be allowed to rely solely on the Beneficial Ownership Registers to fulfil their CDD obligations.

“Indirect ownership” has now been defined as “a shareholding of 25% plus one share or an ownership interest of more than 25% in the customer held by a corporate entity, which is under the control of a natural person(s), or by multiple corporate entities, which are under the control of the same natural person(s)”.

Enhanced Due Diligence (“EDD”)

Domestic Politically Exposed Persons (“PEPs”) will be subject to enhanced due diligence as a result of the changes in the 4th Directive. Now funds are required to identify cases where a beneficial owner is a PEP and apply enhanced CDD accordingly, even if the PEP is an indirect customer and even if it is  after 12 months of the PEP ceasing to hold public office.

A workflow for senior management approval of PEP relationships can now be opened up beyond a member of the board of directors, and can be “someone with sufficient knowledge of the institution’s money laundering and terrorist financing risk exposure and of sufficient seniority to take decisions affecting its risk exposure”.

Suspicious Transaction Reporting (“STR”)

Obligations around reporting of suspicious transactions will now apply to Tax Crimes.

Data Protection

The 4th Directive introduces a general requirement to delete personal data after the expiry of the minimum retention period of 5 years.

If you require further support with your AML undertakings, feel free to call Lorna in London or Tara in Dublin:

Lorna Devlin/ +44 207 8872624 / lorna.devlin@aqmetrics.com

Tara Gordon / +353 1 6292607 /tara.gordon@aqmetrics.com