Achieving cost efficient compliance with strong governance and control
- Regulators across the globe expect increasing volumes of complex reporting to regulatory bodies and clients/investors. This includes transaction reporting under EMIR and MiFID II, CRD reporting, SEC shareholding disclosures, fund disclosures under UCITS and AIFMD, KIIDS and other share class factsheets, as well as various other financial accounting, compliance, and ad hoc and miscellaneous data requests.
- The cost of non-compliance is significant. In October 2017 Merrill Lynch International was fined £34.5 million by the FCA for failures in reporting derivative transactions under EMIR.
- As asset managers have worked to expand their geographical and business footprint to meet client needs, this has added to their scope and complexity of reporting obligations.
- This organic growth of the business and regulatory environment has frequently resulted in firms having fragmented, poorly controlled, and inefficient models, involving multiple third party administrators, agencies, vendors, repositories, and platforms. Ownership is often not well aligned to knowledge or internal data sources, and there are real concerns around governance and control.
Why is it important for our clients?
- The costs of non-compliance are very concerning, particularly with enhanced personal accountability under SM&CR from 2019. There is a clear need for robust governance, backed up strong systems and controls.
- In parallel, developing technologies represent an opportunity to achieve smart, well-governed, and cost efficient compliance, as well as deriving insight into business performance and spearheading good data governance principles.
- The principle objective should always be the achievement of full compliance through timely and accurate reporting.
- Firms need to be able to demonstrate control over the framework through transparent, relevant internal reporting, particularly under SM&CR. Data sources and dependencies (internal and external) need to be called out and well governed.
- Enhancing the efficiency of processes and workflow across teams involved, tools, and third-party vendors and service providers.
- Clarity of ownership and accountability and aligning this to expertise and to the sources of data within the firm. Roles and responsibilities should be aligned to the principles of delineation under a ‘3 lines of defence’ model.
- Having a comprehensive and unified framework can allow more rapid responses to breaches, evidence good control to the regulator, and enable more effective internal monitoring and testing.
How can Alpha help?
There are several key ways in which Alpha supports its clients in this area:
- Source the inventory: Having a consolidated, singular view of the full extent of what information firms report to whom, and who is responsible are often hard to produce. We can support our clients to rapidly pull together the comprehensive inventory of relevant processes, which will serve as the basis for any future enhancement work. Alpha can use their expertise and deep understanding of regulatory obligations, including incoming requirements, to accelerate this process.
- Assess the current model: The current operating model should be assessed methodically against agreed dimensions such as knowledge and experience of resources, process efficiency, governance and control, MI, and systems and data. Alpha have recent experience mapping out such assessments and knowledge of what industry good practice, and regulatory expectations, looks like.
- Draw out the future state: Alpha have worked with several organisations to design efficient, well governed, and robust operating models for reporting. This should take the form of practical, targeted recommendations around (for example) consolidation of processes, re-alignment of responsibilities, enhancements to internal reporting, and use of technology and third parties.
- Support technology and service vendor selection: A lean and efficient operating model should look to make use where appropriate of available technologies and vendors. Alpha have considerable knowledge of available technology solutions and third parties in areas such as workflow, process automation, and consolidation of data (e.g. record keeping) providers.
- Plan and support change: Alpha have recent experience planning out comprehensive change programmes, providing resource, cost, and time indications to support internal decision making. After planning, Alpha can support clients through all stages of change programme delivery from mobilisation, design and requirements gathering through to technology implementation and post go-live support and training.