A December 2013 survey polled hedge-fund managers as to which regulators posed the greatest challenge for compliance dollar costs and difficulty in satisfying the regulations. Interestingly, North American compliance costs as a percentage of Assets Under Management (AUM) were ranked higher than European ones. Among the most burdensome compliance undertakings identified by responders was Form PF preparation. From SEC (Securities and Exchange Commission) and CFTC (Commodities Futures Trading Commission) in the United States to FCA (Financial Conduct Authority) in Europe, the data chase is costing hedge funds hundreds of millions of dollars. Recently, new approaches have been formulated for streamlining data collection.
500 Hours for One Form
Perhaps the most extreme example of excessive resource waste is in Form PF compliance. Twenty percent of fund managers reported spending 500 hours to properly prepare that form. However, by leveraging the procedure and cost of Form PF data collection and reporting, the overall resource cost of compliance with other data submission requirements can be largely centralized and economized.
Leveraging Data Collection
The holistic approach to regulatory compliance assembles data for one form filing process and makes that data available globally for other regulatory filings. By sharing data on an enterprise-wide platform, all reportable data are fed into and dispatched from a centralized compliance station, thus leveraging handling of data sets across several regulatory obligations. Compliance experts have estimated that about one-third of the data so collected can be replicated across all compliance reporting, and in some cases, the benefit is even more advantageous.
The SEC to ANNEX IV Nexus
On October 31, Alternative Investment Fund Managers (AIFMs) filed their Alternative Investment Fund Managers Directive (AIFMD) Annex IV reports. But many managers found that they were able to leverage their Form PF and Form CPO-PQR data filed with the SEC and CFTC respectively and apply the fruits of those data projects to Annex IV compliance. Speaking at a technology conference in London last month, Adam Pacey of M&G Investments emphasized the holistic approach of data collection to the attendees: Firms can sometimes approach different regulatory driven requirements in a siloed fashion. Common data requirements across different regulations might be one example of where taking more of a holistic approach to the requirements and implementation offers those firms some implementation benefits.
Assuring Data Alignment
Regulators have cautioned fund managers that the data reported on Forms PF, CPO-PQR and Annex IV must be consistent to avoid red-flagging regulators. According to Gary Kaminsky, a global regulatory and compliance expert: Regulatory reporting is an exercise in aligning all third-party transparency all reports must have aligned data. Firms cannot provide disparate data to different regulators and constituents; otherwise they will face unwanted scrutiny.
David draws on 20+ years’ experience in both legal practice and in business services delivery since his own call to the Bar in 1989. With several years in the startup environment, including as a co-founder in the legal tech space specifically, he brings a unique and timely perspective on the role of data, automation and artificial intelligence in the modern and efficient delivery of services for legal consumers. Having been both a corporate buyer of legal services and a services provider, he identifies the greater efficiency and value that can be achieved in legal operations for corporate buyers especially.
An attorney, David worked for law firms Pinsent Masons and Linklaters in London before moving to New York to join Credit Suisse. As CAO, he helped negotiate & execute the relocation of Credit Suisse into its new NYC global HQ. Subsequently, David directed major global outsourcing, shared sourcing, HR operations & process efficiency initiatives including the digitization of records, the global roll-out of PeopleSoft HRMS & Y2K. David has worked extensively in the UK, US, Philippines, India and China markets in the areas of data management, human resources and business process outsourcing.
Most recently, David has been successfully investing in and serving as an advisory board member of several legal services start-ups including a cloud-based solution for legal process automation and e-filing; and a technology solution for large-scale capture of court and other public data used for litigation analysis, among others.
David graduated from the University of Manchester with Honors in Law and Bar School (College of Legal Education) in London, and has been a member of Middle Temple since 1989. He is the founder and former Chairman of The Global Sourcing Council.
Member: Bar of England & Wales, ABA, NYCBA, ACC, DRI