The buy side has a long way to go before it is ready for the regulatory onslaught it is facing over the next few years in terms of making its data management preparations, if recent figures from a MoneyMate survey of around 50 investment managers are to be believed. Only 12% of respondents indicated that their existing data management processes were fully supportable, automated and left a full statement of record to facilitate audit, and hence would not need significant altering to meet incoming requirements.
The majority of respondents, two thirds of who were from the US and the remaining third from Europe, said they have some work yet to do in order to comply. The range of outstanding projects ranged right from a complete overhaul of the processes around product data management (at 23%) to a few key amendments to existing processes for product data (at 56%). The remaining 9% were unsure about what needed to be done in order to keep out of the regulators’ bad books in this regard.
This supports the notion that many buy side firms have examined where they are currently with regards to compliance with data related issues but have not taken much action, as noted by MoneyMate back in July last year. At the time, the vendor’s chief technology officer Ronan Brennan said increased media attention being given to regulation and the punitive action taken by regulators as a result of data errors has flagged the issue of data management for the buy side at large.
In terms of confidence in product data quality, the majority, at 68%, said that this data was “usually” accurate and timely, with only 24% indicating that they were fully confident in it “always” being accurate. This highlights the potential issue that data quality may pose further down the line, given the regulators’ increased focus on accuracy and timeliness.
A whole host of recent regulatory papers, including the MiFID Review, UCITS IV, Basel III, Solvency II or any number of UK Financial Services Authority (FSA) papers contain references to accuracy, consistency, timeliness, reliability and completeness of data. The respondents to MoneyMate’s survey, however, indicated that they were largely preoccupied with the developments around the Dodd Frank Act in terms of data quality (at around 70%). This is no surprise, given that the majority of respondents hailed from the US and the regulatory community in the country has made much of data standardisation over the last 12 months.
The Commodity Futures Trading Commission (CFTC) has been particularly active in raising the data issue and the Office of Financial Research (OFR) has prompted a global debate about legal entity IDs. The European buy side firms, on the other hand, highlighted UCITS IV and the key investor information document (KID) requirements as the most pressing in terms of data quality, with over 60% of respondents citing these requirements.
Nearly 30% of respondents indicated the Alternative Investment Fund Managers Directive (AIFMD), and an additional 17% indicated Newcits were items of discussion and concern in their firm, which Brennan reckons is a clear indication that alterative strategies and the hedge fund industry are key industry focus points in the years ahead. The biggest challenge that lies ahead for over half (53%) of these firms, according to responses, is moving away from manual processes. Timeliness (at just under 50%) is the next on the hit list, closely followed by cost and accuracy of data; with data audit trail bringing up the rear. However, around 79% consider themselves to be “somewhat prepared” for regulatory change.
It seems that these firms equate being forewarned of change with being forearmed. Of course, vendors such as MoneyMate and the like are touting their services to fill these gaps. If only 12% of buy side firms are fully ready for change, there should be plenty of business to go round.