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Magazine Issues » May 2015

BACK OFFICE VIEW: Annex IV - looking ahead

Nicola Le BrocqThe first Annex IV reporting deadline was the grand finale for a piece of legislation – the Alternative Investment Fund Managers Directive (AIFMD) – that has had a huge impact on alternative managers.

It was a turning point for some asset managers, who realised what complying with the regulation surely meant. The January deadline caused the biggest headache for the UK regulator, resulting in problematic technical issues and some managers missing their deadline.

Larger global managers were arguably best placed to meet the requirements. They had the resources to develop the systems and processes needed to properly prepare – although the cost of creating a system in-house is a point worth bearing in mind. 

The managers who faced the greatest challenges were the small and mid-sized managers, who had to cope with the expense and sheer volume of time and resource needed to first understand the Directive’s complexity, then to co-ordinate an appropriate response. The regulatory filing alone includes more than 300 data points and the burden is increased by the need to integrate with external data providers and third-party administrators.

Reportedly, one of the greatest challenges in meeting the January reporting deadline was the FCA’s Gabriel system. Technical issues meant it struggled to cope with the volume of traffic. 

But before pointing the finger of blame, one should understand the regulators are simply responsible for implementation of the statute at a national state level and enforcing the prescriptive requirements contained within EU directives. Others make the rules and have less concern for the practicalities. 

One of the key observations from the AIFMD implementation and Annex IV filing process is certain inconsistencies relating to timing of readiness, which is something that can be improved. For example, the regulator is expected to be fully prepared and staffed for receiving the Annex IV reports from their regulated community – yet at the time of writing, the higher supervisory body, Esma, is still not equipped to receive the data and information from the regulator. 

So how is the industry positioned for future Annex IV obligations and wider regulatory responsibilities? The next reporting deadline for managers depends on whether they have quarterly, semi-annual or annual reporting obligations. For the most part, regulators will continue to improve their systems and hopefully electronic delivery of reporting to regulators will increase efficiency. However it’s noted, some regulators are reluctant to hold the data from managers until a robust mechanism for reporting to Esma is in place. 

Annex IV has been a watershed moment for the fund management industry; the size and scope of the reporting requirements has shocked many managers. The key to future success in the industry will now be data management. What asset management CEOs are coming to realise is that back-office operational efficiency has become one of the core areas of running a profitable business and a key differentiator. The challenge lies in putting a data management and operational framework in place that has the flexibility and agility to deal with regulations that are imminently on the horizon.

This means managers need to find ways to work efficiently both in-house and with vendors to have effective communications and procedures in place for dealing with this unprecedented challenge – and, most importantly, to find ways to transform this challenge into the business opportunity it can be.

©2015 funds europe