In today’s still fragile environment of recovering economies and financial markets, it is extremely important for a business world to have a reliable and trustworthy source that will provide exceptional expertise and experience. BDO is the world’s fifth largest accounting network, with global reach and strong personal local relationships. BDO has a specialist team for hedge funds, both in the UK and as part of international network. The Company has depth and breadth in provision of services across the entire financial services sector – in audit, tax and business advisory services with full spectrum of services at every stage of the business. The extensive hedge fund experience which comprises onshore FCA regulated management entities and offshore fund vehicles encompassing a wide range of strategies, structure and jurisdictions, represents only one of the unique features of BDO.
Today we would like to present the interview with Michelle Carroll, Partner, Financial Services Audit, BDO. Michelle kindly agreed to share her views on current market, regulatory trends and alternative investment.
Michelle has been an auditor to the asset management community since 1991. She has worked in Sydney, Bermuda, Dublin, Edinburgh and Monaco and has wide experience of leading projects for international regulated entities in multiple jurisdictions including regulated asset managers, retail funds and professional investor off shore alternative funds. She spent 2009 – 2011 working in Dublin with UCITS fund clients.
Michelle gained her Funds Management Markets & Products Securities and Professional Custody qualification from the Securities Institute in Australia. Michelle sits on the ICAEW Investment Management Committee and AAF01/06 working group together with the AIMA subcommittee on AIFMD issues. She has worked on remuneration planning.
Michelle has a diverse and long history with all types of asset management entities and has assisted all aspects of the asset management industry including and leads BDO’s AIFMD initiative. She is a member of the Institute of Chartered Accountants in England & Wales’s Investment Management committee which works closely with the Financial Conduct Authority and others in the industry.
1. Can you tell us about your education and your career?
I grew up in Australia in the beach side town of Cronulla. I went to Santa Sabina Ladies College and onto the University of NSW taking a Bachelor of Commerce. I’ve been an auditor to the asset management community since joining the Price Waterhouse Sydney office in 1991. I now live in the UK but have worked in many countries including Bermuda, Monaco, Luxembourg, Cayman Islands, Scotland and Ireland.
I moved from PwC to a start-up firm called Kinetic Partners in 2007 – a consulting business that focuses purely on asset management clients. My portfolio consisted of a diversified group of funds including long/short, quant, credit arbitrage and emerging markets and UK regulated AUTs and OEICs. I joined BDO as a partner in March 2012 specialising in asset management and am now the European Head of Asset Management. I’m a member of the Alternative Investment Managers Association and specifically took part in the working group which made recommendations to ESMA on AIFMD implementation, specifically reporting, and am currently part of the AIMA group consulting on remuneration under AIFMD. As a member of the Institute of Chartered Accountants of England and Wales Investment Management Committee I represent the interests of alternative fund managers and via this group work closely advising the FCA and others, recently on CASS reporting. I’m also a member of 100 Women in Hedge Funds, an organisation devoted to promoting alternative asset management education and charitable works around the world and I hosted an event with 100WHF in February 2014.
My client base has always been asset management focussed but always broad and ever increasing. I tend to get excited now when bankers are interviewed about their views on shadow banking and find myself yelling at the paper that it’s asset management specialists they should be talking to, not bankers!
2. The financial and fund industry has been and is going through a disruptive path specially regarding regulations and compliance. What are your views on this?
Post the global financial crisis, Governments worldwide and their respective regulators have sought to regain control over the broader financial sector. This in turn has meant that all businesses within the sector have been subject to new stringent regulation as Governments have put measures in place to prevent another financial crisis of the scale seen in 2008. While the regulation has been viewed by some in the financial sector as disruptive and others have complained of regulatory fatigue, the regulatory change was and is unavoidable and businesses need to ensure they are fully informed and compliant with these changes.
Alternatively, we have seen the growth of ‘disruptive’ businesses, generally in the area of alternative financing which are highlighting how much financial services business can be done outside of the regulated world. So I would definitely define today’s environment as one stage in the evolution of the funds industry and we are not yet stable nor will be for quite a while. In the meantime, investors still need investment opportunities so the industry has to continue to be creative and deliver.
3. How do you see the overview of the tax, audit, advisory and regulation landscape for the banking, finance and fund industry?
If I were to describe it in one word, it would be complex. The regulatory changes implemented in the financial sector span the micro (industry and sector specific) and macro level (national and supranational policy). As you can imagine, its a bit of headache for the businesses that are navigating the changes. This is where BDO can help businesses. BDO’s holistic view and deep understanding of the regulatory changes means we are able to assist businesses practically and strategically on their compliance obligations. I deplore sounding like a consultant but… a two pronged approach needs to be taken; top down and simultaneously, bottom up. Without belittling regulators (which is a dangerous thing to do), businesses cannot operate unless they satisfy the local regulator so firms need to implement the right regulatory reporting requirements and make sure they are right. Simultaneously, it is costly to just have a box ticking approach with no thought to the macro cost implementations. If system synergies can be made if a regulation in one jurisdiction is adopted early, then do so.
4. You work for BDO, can you tell us about your vision and the specific offers you have?
BDO is the world’s 5th largest accountancy and business advisory firm providing services in 144 countries worldwide. Our revenue for 2014 was $6.45bn and we employ over 56,000 people. Those statistics are not that important to me but it very concisely states that we are a big firm with a global reach. What is more important to me is that we are able to provide clients with what they need. We are nimble, entrepreneurial and thought provoking but at the same time we are professional, reliable and with a global commitment to excellence.
Within five years, I want the global FS market to recognise that the smart players go to BDO.
5. What are the unique offers and differentiators of your company for banks, brokers and investment firms, especially hedge funds?
Simple; client satisfaction. For the last three years running, BDO has topped an independent survey measuring client satisfaction against our peers. If our clients are satisfied, then we are doing the right thing.
6. You work delivering audit and assurance services to banks, brokers and investment firms. Can you describe the general process?
One of my pet hates is when I am told audit is a commodity. It’s a way of driving the price down and is a self-fulfilling prophecy with dire consequences. Through our extensive knowledge and experience in the financial services sector we have developed specific audit procedures which we tailor on a case by case basis, reflecting the specific operational, regulatory and financial risks faced by a business. We keep our clients abreast of all relevant technical changes and issues relating to financial reporting standards through regular news bulletins, technical seminars and other events and initiatives. We regularly seek client feedback to allow us to enhance our performance and constantly work to improve the service we provide in our quest to be the quality leaders in our industry. And, we want to enjoy our work too. We want to understand the client’s business and have the tough discussions about doing the right thing. A client once told me that whenever he was thinking of doing something less than honourable, he would call me to talk it through and I would be the one who supported him to do the right thing. That’s the best praise ever. You don’t get that from being a commodity.
7. What is your / BDO position in regards to FATCA?
I worry about the private equity market. There are a lot of players out there who are choosing to not engage with FATCA (nor AIFMD to be honest).
Given the scale and complexity of change involved, and if not done so already, we believe firms must quickly focus on ensuring the following:
1. Senior management is engaged and providing active sponsorship of the FATCA programme.
2. There is cross-business awareness of the impact of FATCA underpinned by formal enterprise-wide governance to ensure all affected areas are involved in work to comply with the new regime.
3. A detailed impact assessment has been completed to identify how FATCA will affect the business and the strategic options that may be available.
4. The IT and operational effort required to comply is fully built into the firm’s budget and change portfolio.
5. The Executive who will have formal sign-off responsibility for FATCA compliance has been identified and they are considering the audit and assurance processes they will need to have in place to allow sign-off
In difficult trading conditions, FATCA is placing a significant additional pressure on firms. Our work with clients to date shows that time spent focusing on the above will pay dividends in terms of ensuring quicker and more effective mobilisation of effort.
8. Can you explain BDO’s main services and its strengths and opportunities you offer to funds and alternative managements professionals?
We fully understand the asset management industry and the challenges it faces. As firms strive to balance cost and competitiveness, BDO has the expertise and knowledge to provide financial assurance and audit support as well as expert advice on regulation, FCA authorisation, money laundering and financial crime. Tailoring our approach to meet our clients’ needs and deliver real value, we work with UK and offshore funds, their managers, owners and service providers, supporting them throughout the life cycle of their business. Our wealth of knowledge helps our clients retain and grow assets, mitigate risk and respond to regulatory changes. Our London and UK team work alongside our international colleagues – particularly in Cayman, the Channel Islands, Dublin, Luxembourg, New York and Switzerland – to ensure that we offer an integrated international approach for our clients.
9. Why are investors, hedge funds, and fund managers more interested than ever in alternative investments and creating new funds?
It just stands to reason; the global pension deficit isn’t getting any smaller. We need diversified portfolios to maximise risk and return and alternative investments have a role to play in that. Ignore it at your peril. And, stifle it at your peril. I worry that massive regulation like AIFMD will dissuade the small player from setting up and thereby goes another great idea without coming to fruition.