Regulation Survey Results: Part 2

This piece is a follow-up to my most recent blog posting on the results of our recent “data management and regulation” survey. I think the survey gave us a good chance to get a snapshot of what people are concerned about in terms of upcoming regulation and how it will impact their business processes.

The last posting was getting very long so I only posted some of the results. I finished up talking about the regulations that people were most concerned about in North America. The third question in our survey concerned European regulation and the topical issues there.

The question was: “in Europe, which of the following regulatory discussions concerns your organization most: RDR in the UK, UCITS IV & KIID for cross border funds, AIFM for hedge funds, the rise of Newcits, the upcoming UCITS V directive or the changeover from CESR to ESMA?”

 

Not surprisingly nearly two-thirds of all respondents indicated the big discussion point in their firm was UCITS IV and KIID – if anything the surprise is that it did not have a higher response. Maybe this is because many firms have focussed so heavily on preparation that they are very confident they are well placed to deal with the upcoming requirements that UCITS IV brings as well as the ability and readiness to initiate publication of KIID documents.

Nearly 30% of respondents indicated the AIFM directive, and an additional 17% indicated Newcits were items of discussion and concern in their firm – a clear indication that alternative strategies and the hedge fund industry are key industry focus points in the years ahead.

Somewhat surprising though is the fact that UCITS V is already a discussion point for 17% of respondents – the belief here is that the depositary structures that facilitated Madoff and manager remuneration are going to be addressed – these topics will ensure this is a hot topic of conversation for years to come.

Finally 17% of respondents indicated Solvency II was a key discussion point – this will become a key topic of conversation for any asset manager that has mandates emanating from the Life and Pension sectors – the demands on risk control, asset liability, ability to be transparent and report accordingly are all hot topics in the Sol 2 world.

Next up was the question: “How prepared is your organization for dealing with upcoming changes in regulation - are you totally prepared, somewhat prepared or not at all prepared?”

 

Thankfully the vast majority of respondents are at least somewhat prepared, but surprisingly only 15% or so indicated they believed their firms were totally prepared.

So it seems like the adage – a lot done, but more to do – seems prevalent here. Most firms are aware of what needs to be done, they have plans in place, but in some cases these plans have not been fully executed.

More reassuringly, we see that only 3% of respondents indicated that their firm is not prepared at all for the changes in regulation that are coming down the tracks. Overall, the responses to this question indicate that firms are struggling to prepare for the enforcement of regulatory reform, particularly in terms of their product data.

The next question in the survey was: “Do you think that new regulatory reporting requirements will change your organization’s attitude towards data management?”

The responses to this question were most interesting…… 

Nearly one-quarter (23%) of all respondents indicated that recent regulatory changes will force their firm to totally change their processes for getting their product data into the market, while only 12% of the respondents indicated that their existing processes were fully supportable, automated and left a full statement of record to facilitate audit.

The greatest number of respondents (56%) indicated that their firms only needed to make some amendments to the existing processes in their firm, for the management of product data.

The response to this question aligns with previous responses – where it would appear that in most cases firms know what they need to do, but have not fully executed their plans.

Overall, the responses to the survey questions indicate that firms are struggling to prepare for the enforcement of regulatory reform, particularly in terms of their product data.

The final question in the survey was: “What are the biggest challenges in getting your product data to market – are they manual processes, timeliness, cost, accuracy or something else?”

 The big shock here is that just over half (53%) of respondents indicated that the biggest obstacle to getting their product data to market is manual processes, with a similar number indicating that timeliness was an impediment. It is not surprising that 40% indicated cost was a problem – this most likely results from having issues with manual processes.

Of most concern though should be the more than one-third of respondents that indicated accuracy was a problem for them. This is worrying indeed when you consider the considerable focus that has been placed on data management in recent years and the vast amount of IT dollars that have been spent trying to address the problem.

Finally the 6% other – commented that ability to maintain a statement of record or auditable trail of ownership was their greatest challenge – which is interesting – the inference we derive here is that these firms have automated processes and reasonable levels of accuracy, but proving this and showing a demonstrable audit trail to auditors and regulators alike is a particular concern.

So that’s it on our survey results – I thought they were worth sharing with a wider audience and it might give you an insight into how people are preparing for upcoming regulation.

Regulation Survey results…

I think that surveys are a fascinating insight into people’s views on what’s happening in the marketplace. We try to conduct a survey at least once a year on current trends in data management. Last year, our survey focused on what people’s challenges around data management were and this year, it was all about regulation. We decided to focus on regulation because as far as I’m concerned it seems to be all people are talking about – they’re talking about KIID, Dodd Frank, FINRA, fines, compliance and many are not really sure about how new regulation is going to impact them or what lies ahead.

 The global regulatory community has come under a lot of flak since the 2008 market implosion. In many regions, the regulator has been disbanded, restructured or at the very least forced to report to government led investigative committees. The charge levelled is that they failed to maintain a stable market by not having a clear view of the systematic market risks that were at play. The industry itself also had a role to play in the demise of the previous boom – as employees were incentivized to take on risk without the appropriate checks and balances to measure and mitigate exposures. Additionally, operating models did not keep up with the rapid change of the industry landscape – leaving behind a legacy of manual error prone processes and key knowledge data sets that were poorly maintained. In doing so, the industry and regulators to a large extent left the public to carry the can. So it is not without reason that the media and investment community alike are keenly interested in the regulatory backlash that can be expected in response to the financial crisis. Regulation was always a driver within the industry, but more recently its prominence has increased because the fines are getting bigger, and the reputational damage is all the greater, for the increased coverage being delivered by the media. Understandably, the regulators are now focused very firmly on managing market stability and ensuring the industry is treating investors fairly. From the “Know your product and client” perspective – the key focus here is that investors should be sold the most suitable product for their particular situation. The regulator (and I refer to them in general terms here) – is looking for accuracy and timeliness – and they are looking for consistency across all public communication of data – be that – printed fact-sheets, micro-sites, or institutional client reports. Sales and marketing material for investment products is coming under increased scrutiny – the regulators are increasingly treating such material as disclosure of material fact, where as in times gone by, firms were not being held to account to the levels they are today, vis-a-vis the information disclosed in such documents. Anyway, that’s some background … and I will post a blog on what the individual regulations are about in each region but on to a little more about our survey. We usually conduct our surveys at industry events such as NICSA, ICI General Membership Meeting, TSAM in Europe and also online. We presented the results in a webcast on April 13th and also in a press release which you can access here.

The objectives of the survey were:

•  to gauge industry insight on regulation

• to learn how prepared these organizations are for the impending changes

• and how will it affect firms data management processes and strategies into the future.

 The drivers for the survey should be obvious to us all – many organizations are actively assessing their target operating model with a view to adapting themselves for upcoming regulation, on top of this you have the rising spectrum of reputational damage due to increased media scrutiny and the fact that data management is now a standard item on the agenda for corporate risk assessment.

66% of the survey respondents were from North America (primarily USA) and 33% from Europe.

The first question on the survey was: “Would you say that the product data you distribute to the market is; always accurate and timely, usually accurate & timely, rarely accurate & timely, or, you don’t know” and I’ve put together a quick pie-chart of the results below:

 

What was interesting from the response was that just less than one quarter of respondents indicated that their product data was always accurate and timely, although nearly two-thirds indicated their data was only, usually accurate and timely. What can we take from this? Well it seems that most of the time asset managers product data in the public domain, is in the main accurate and timely, but, for two-thirds of asset managers, there are periodic issues with either getting their data to market in a timely or accurate manner. This is really highlighting something we already know – getting your product data into the public domain so that you have a high degree of confidence in its accuracy is not a simple solution to solve – even though this is your own information? The predominance of manual processes that deliver data from back and middle to front office is probably the core reason we see this lack of confidence. Anywhere that you have manual processes, it leads to a lack of repeatability, inability to create a systematic audit trail and a breakdown in confidence in the ability of the machine to operate under full load. What is clear is that regulators do not want to see such environments – specifically we have heard from some of our own clients that recent SEC exams focussed heavily on the ability to demonstrate repeatable and auditable processes where data was being pushed into the public domain and facing off to client investors.

The next question was “in the US and North America, which of the following regulatory discussions is your firm most concerned with? The Dodd-Frank act, the Point of Sale fund fact regulation in Canada, the reforms of the Money Markets, the 12b-1 reforms or recent FINRA interjections”

The response was hardly surprising – just under three-quarters of all respondents indicated that Dodd-Frank was at the forefront of their firms concerns when it came to discussions on regulation. It would have been surprising if the result were any less – Dodd Frank is a behemoth act, the impacts and true force of which are not even fully realized yet. I was surprised that FINRA did not feature higher than a fifth of respondents’ concerns – in particular when you consider the amount of cases they have taken recently. Even though the SEC reforms of the US money markets is to an extent yesterday’s news, it was interesting to note that nearly a quarter of all respondents indicated that these reforms were still a discussion point of concern within their firm. While the fact that a third of respondents are concerned with the ongoing trials and tribulations connected to the 12b-1 fees is not a surprise either – anything that impacts the commercial model that impacts distribution and compensation of brokers means a lot of upheaval in existing operating models. Finally the fact that only 8% of respondents are concerned with the POS Fund Facts regulation in Canada should be balanced with the knowledge that the majority of respondents were US firms which had limited exposure to Canadian investors.

This blog is getting very long…. so I will keep the results of the rest of the survey for the next post!

The survey says…..

Over the past six months the team here in MoneyMate carried out a survey which focused on data management issues and challenges facing asset managers. This survey was designed to be a “pulse-check” of the asset management community and examined their attitudes towards a number of issues, in particular data management and outsourcing The survey was primarily run at a number of key industry events including TSAM UK, NICSA’s Annual Conference and ICI’s General Membership Meeting where senior executives gathered to discuss and debate the latest trends..

Survey respondents included executives in various positions at leading asset management firms, including Operations, IT, Distribution and Compliance. The majority (74.2%) of respondents work at organizations managing more than 100 funds.

We issued a press release about the survey results last week and I thought I’d share some of the results on this blog too, as I think it’s quite interesting. The main findings were:

• 50% of respondents named manual processes as the greatest challenge in bringing their product data to market

• 80.7% of respondents are already considering, or would consider outsourcing their data management processes

• 33.3% feel they are currently paying too much to bring their product data to market

The results show the importance of bringing automation into the investment product data management space in order to ensure that timely and accurate data is always available.

I think that the survey results are very much in line with what we are hearing in the market . When I go to events or meet with customers, I am constantly hearing that data quality management is a real issue and that asset managers are frustrated with the time, costs and manual processes involved on a monthly, weekly or quarterly basis. The problem with manual processes is that they are very prone to inaccuracies and inconsistencies and there is no way of guaranteeing that no errors go out to the market. Asset managers are very concerned with potential damage to their reputation if data on their products available in the marketplace is not of the highest possible quality.

Another big driver is regulation. You’ll have seen previous blog posts where I talked about the impact of regulatory scrutiny on data management. We’re definitely seeing evidence that people are really concerned about exposure to the regulator and they want to be able to prove that they have streamlined and watertight processes for all their data management.

Asset managers are showing more willingness to outsource their data management processes also – many recognise that data management is not a core competency. The benefit of outsourcing is that you can outsource to an expert in the field who has done this work for other companies and can offer you an “out of the box” solution that is also easily customisable.

The full press release on the survey is posted on the MoneyMate website.