Outsourcing risky for hedge funds, says ViClarity
10 December 2014 Kerry
Image: Shutterstock
Hedge funds could be underestimating the risks of outsourcing compliance services in the rush to meet the reporting requirements of the alternative investment fund managers directive (AIFMD), according to compliance software provider ViClarity.
The company estimated that 70 percent of European hedge fund firms are outsourcing their reporting obligations, but stated that many of these may not have realised that AIFMD requires fundamental changes to business structure, conduct and processes.
ViClarity warned against implementing ‘quick fixes’ that may not be effective in the long term, adding that companies could be exposing themselves to prosecution if they don't realise the full burden of AIFMD.
Ogie Sheehy, founder and chief executive officer of ViClarity, said: “AIFMD is not just about changing the activities of a firm’s chief risk officer, it is about changing the way that most people in the firm conduct business. This lack of understanding of how much needs changing is adding unnecessary risks.”
The ViClarity product is designed as a toolkit that becomes part of the internal business process. It offers on-going, automated compliance monitoring, oversight and auditing trails, with the aim of reducing the burden on fund managers. Assessment, aggregation and reporting controls could also apply to other regulatory requirements.
Sheehy added: “Some EU member-states already have laws in place that clearly place responsibility for the business conduct of a financial institution directly with the senior executives of the firm on a personal basis. This makes them personally liable for the conduct of the firm, including to the extent of criminal liability.”
“Many factors such as the size or culture of a hedge fund firm or its in-house analytical ability influence its propensity to outsource. But those that are outsourcing in practice appear to have one thing in common, which is a tendency to pay minimal attention to the audit of business conduct.”
The company estimated that 70 percent of European hedge fund firms are outsourcing their reporting obligations, but stated that many of these may not have realised that AIFMD requires fundamental changes to business structure, conduct and processes.
ViClarity warned against implementing ‘quick fixes’ that may not be effective in the long term, adding that companies could be exposing themselves to prosecution if they don't realise the full burden of AIFMD.
Ogie Sheehy, founder and chief executive officer of ViClarity, said: “AIFMD is not just about changing the activities of a firm’s chief risk officer, it is about changing the way that most people in the firm conduct business. This lack of understanding of how much needs changing is adding unnecessary risks.”
The ViClarity product is designed as a toolkit that becomes part of the internal business process. It offers on-going, automated compliance monitoring, oversight and auditing trails, with the aim of reducing the burden on fund managers. Assessment, aggregation and reporting controls could also apply to other regulatory requirements.
Sheehy added: “Some EU member-states already have laws in place that clearly place responsibility for the business conduct of a financial institution directly with the senior executives of the firm on a personal basis. This makes them personally liable for the conduct of the firm, including to the extent of criminal liability.”
“Many factors such as the size or culture of a hedge fund firm or its in-house analytical ability influence its propensity to outsource. But those that are outsourcing in practice appear to have one thing in common, which is a tendency to pay minimal attention to the audit of business conduct.”
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