SEC Modernization – the Storm is Coming

Posted by John Bartlett on Mar 28, 2016 6:00:00 AM

We had a workshop last week in Boston attended by reporting teams from five different asset managers. The group was diverse not only in the size of funds managed, but the pieces of accounting and reporting that were managed in-house versus outsourced. There was some of everything.

SEC Mordernization storm is coming We discussed the proposed regulation changes, potential impact, what each team has done and is doing to prepare for what everyone agrees is going to happen. We debated liquidity and derivative specifics, what should be made public versus just for SEC review, filing deadline days, when the rules will be finalized and phase-in schedule, but everyone agreed on the following:

  • The changes will happen
  • Quarterly filings will go to monthly
  • A lot more data will be required

I had two images in my head as I sat there listening for three hours.

One was of being on many summer family vacations in South Carolina. We always go in August – right in the middle of hurricane season – and have often watched the weather closely as tropical storms cross the Atlantic. On many occasions, I remember meteorologists talking about how storms build, what categories they were and when they were going to touch land. My point being is we knew when a storm was coming and literally experienced “the calm before the storm.”

The other image I had was the NFL draft coming up next month. For those of you who follow American football, I am sure you have seen it on ESPN. They go through the selection process on pick order. As soon as one team picks, the Commissioner then says to the next team, “You are on the clock,” which means you have 15 minutes to announce your pick or you forfeit.

So now, we have a storm and a clock.

As last week’s meeting progressed, we really broke down the necessary analysis into four pieces:

  • Data analysis inventory
  • Process analysis
  • Technology analysis
  • Staffing analysis

Teams were all over the board regarding where they were in the process. I think some left the room feeling pretty good, but knowing they need to stay focused. Others might have been on the phone walking back to the CFO, COO and President saying, “We need to talk.”

There were a couple of industry consultants also in attendance. When we spoke after the meeting, one of the guys made the point that the analysis should have been done anyway. Now, N-Port and N-CEN are just forcing the conversation, a “trigger” or a cold shower that wakes you up. Basically, if your process is tight, then this is a big deal. However, if your process is loose, then this is a really huge deal.

It is not enough to say, “I will let my service provider handle it.”  The group consensus was that even if you outsource the reporting, you will need in increase headcount 30%+ from a pure oversight standpoint. Forget the cost for a moment and consider this: in a town like Boston, where are all those bodies going to come from?

We understand that technology is a piece of the conversation, but it can touch two pieces: data aggregation and process.  If you are not already engaged in this analysis, remember, the storm is moving across the Atlantic, and you are on the clock.

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Topics: Fund Regulatory Requirements, FinTech