April 2015

BACK OFFICE VIEW: The state of Annex IV reporting

Amelie SnapeAnnex IV Reporting is required under the Alternative Investment Fund Managers Directive (AIFMD) with the objective of providing increased transparency of the alternative funds industry on a pan-European basis. It has posed both operational and systems challenges to firms. The reporting obligation applies to alternative investment fund managers (AIFMs) in the European Economic Area (EEA) as well as those non-EEA AIFMs marketing into Europe. However, the level of detail and frequency of reporting is determined by various factors, including size and types of assets managed and whether funds are significantly leveraged.  The challenge for firms has been to interpret the detailed requirements of the reporting templates set out by the European Securities and Markets Authority (ESMA), translate this into the granular data needed, and to adapt existing systems infrastructure to source this data reliably and consistently. The nature of the information needed typically necessitates significant involvement of the fund administrator and setting up data flows to accurately populate the reports.  A suite of new product offerings has sprung up in response. These include reporting solutions offered by administrators as well as other third-party systems providers. Firms that have the necessary operational and IT infrastructure and internal resources have tackled reporting solutions in-house.  The depth of input required by firms should not be underestimated. In the lead up to the January 31, 2015 deadline, there were months of planning and test runs to ensure that the first reporting efforts ran smoothly.  Where are we now?
You might expect that with the deadline recently passed and the long lead time to the first submission, reporting should have gone relatively smoothly. The reality, however, is that a number of firms have yet to submit. Some discovered days before the deadline that the Financial Conduct Authority (FCA) reporting system, Gabriel, had not been pre-populated with ‘PRN’ codes for their funds, which is a pre-requisite for submission. Others, relying on third-party providers, were let down at the last minute by systems failures on the part of the provider, leaving some without access even to basic information to try to recreate reports themselves. This has raised questions around the due diligence carried out on providers and the contingency arrangements in place. Other firms were impacted by FCA systems issues as Gabriel crashed under the volume of reports being uploaded, leaving some unable to complete the validation and submission process in time.  What happens next? 
The FCA has reassured firms that enforcement action would not be taken against them for late submission where FCA systems issues and lack of PRNs prevented them from meeting the deadline. However, the FCA has made it clear that such firms are expected to submit their first reports as soon as possible and, in the case of missing PRNs, within one month of receipt. Post-deadline reporting
There is undoubtedly some analysis to be done on the consistency of approach taken to reporting between firms. Firms have been able to provide a number of assumptions to clarify the basis of their reporting. There will need to be an analysis of how comparable reporting is between firms and how meaningful such comparison can be, with scope for further guidance to improve reporting. In addition, we will need to wait and see what feedback is received at a European level. After all, the objective of reporting is to increase the visibility of the alternatives industry at this level and improve the assessment of potential systemic risks.  Amelie Snape is vice-president at Kinetic Partners ©2015 funds europe

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