An article that appeared in Ignites Europe this week highlights the increased workload and stress, which the reporting and legal teams at European asset managers are feeling in anticipation of upcoming regulatory changes and requirements initiated by MiFID II legislation. Not to mention that 30 percent of asset manager change budgets will be spent implementing the new rules, according to a survey conducted recently by Alpha FMC.
The Alternative Investment Fund Managers Directive (AIFMD), which came into effect in July 2014 across Europe, is already causing significant difficulties for asset managers due to the volume of data required, as well as the short time frame in which reports must be compiled. It is quite interesting that according to another Ignites Europe source, Dan Ricketts, “For each alternative fund, asset managers are required to submit more than 300 data fields, including the main instruments traded, investment strategies, markets where a fund traded, and its principal exposures and concentrations.”
Similarly, complying with the new requirements under MiFID II legislation will require a significant level of new streams of data to be produced in a variety of different reports to different agencies and/or divisions of such agencies. Needless to say, the risk of duplication of effort by asset managers is huge, and can be costly in terms of finance capital, as well as human capital.
FTfm reports that the transparency rules associated with the MiFID II legislation may also put banks in a vulnerable position by requiring them to divulge prices to the market on liquid bond instruments prior to sale. This will certainly have an affect on the way these instruments are traded, and it is likely that banks may decide to exit this market. According to James Hughes, a director of a Brussels-based lobbying group, Cicero, the European Commission does not have the resources to amend the proposed legislation, which will not only affect the market for such bonds, but will also ensure the drastic increase in data reporting requirements.
The U.K. Investment Association sites a major problem with alternative investment funds that have reporting requirements in different jurisdictions, which in some cases have resulted in manually inputting report data or incur the additional cost of revising reporting software.
For the many alternative funds domiciled in Ireland, and operating across various countries and jurisdictions in Europe, these funds may have up to 40 different reports to file on a quarterly basis, as compared to those domiciled in the U.S., where reports are consistent across states, and therefore not differentiated.
Other regulatory initiatives facing European asset managers, such as Solvency II, only compound the level of data requirements spread across a wide range of governmental agencies.
All of these new regulatory requirements could become overwhelming without a well functioning, centralized reporting system that can streamline the data reproduction process, simplify the compliance risk management process, lower document creation costs, and reduce or eliminate errors that can result in delayed regulatory filing or costly legal liability. An enhanced automated system, such as FundHive, is designed to address these needs.