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Opinion: Regulatory Reporting – an Opportunity, Not a Burden

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By Melvin Jayawardana, European Market Manager, Confluence

As the Alternative Investment Fund Managers Directive (AIFMD) comes into effect today, 22 July, 2014, European fund administrators and fund managers face big challenges getting up to speed on the full ramifications of the directive and the scope of work it will require in their middle- and back-office operations.

The reality is that most AIFMs’ middle- and back-office processes rely on disparate systems and multiple teams that manually collect and validate fund data, regulatory or otherwise. Far too often, multiple people are touching disconnected data sets and they lack shop-wide data visibility. Managing fund data manually and across multiple in-house systems will be nearly impossible within AIFMD’s reporting window, which can be as short as 30 days. However, at Confluence we see AIFMD as an opportunity for the investment services industry in at least three ways.

New Service Offerings

There is a significant opportunity for fund administrators to begin developing service offerings that address the new regulatory requirements fund managers face. In addition to AIFMD, fund managers face two other regulations in 2014 ? European Market Infrastructure Regulation (EMIR) and the Foreign Account Tax Compliance Act (FATCA) ? that will significantly impact current business practices.

Each regulation will change the way fund managers collect, validate and report on fund and investor data. The fact that funds must address all three regulations in the same year amplifies the challenge. Fund administrators that can successfully tackle all of them will stand out from the pack and distinguish themselves in a time when these offerings are critical.

Repurposing Data

In addition to the opportunity for fund administrators, AIFMD and other regulations represent an opportunity for funds and their administrators to adopt new data management practices that will ease multiple reporting requirements and lead to a smarter global operating model. With the right technology solution, much of the data aggregated to comply with AIFMD can be collected and validated once and repurposed to meet other requirements, thus significantly alleviating reporting challenges that require similar or the same data.

Administrators will need to productise and innovate if they are to address these growing concerns from asset managers that are actively managing their profit margins. There is a downside for those administrators that fail to realise the value of the data they hold; those providers will give away data elements in the form of free data extracts with no costs or large revenue implications, and they will see their profits erode over time.

Bringing the Back Office Forward

Complex reporting requirements, such as the ones associated with AIFMD, are rapidly increasing the need for new and innovative back-office workflow management. Outdated and risk-prone technologies, like the use of spreadsheets for data management, are finally being forced into the past. The back office of tomorrow will need to adopt the level of automation front offices have embraced over the past decade in order to ensure operational efficiency and minimise regulatory risk.

Whether you’re ready for AIFMD or not, it’s here. The question is, will you view it as another regulatory mountain to climb, or an opportunity to drive growth and innovation at your fund?

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