Data down under
26 October 2016
A robust content management solution and data set is more important than ever before, says Colm Carey of Donnelley Financial Solutions
Image: Shutterstock
Since the financial crisis, numerous regulatory initiatives have led to a number of new reporting requirements for fund managers globally. These include the Key Investor Information Document (KIID), the Regulation for Packaged Retail and Insurance-based Investment Products (PRIIPS) and its corresponding Key Information Document (KID), and the Alternative Investment Fund Managers Directive (AIFMD) Annex IV in Europe, as well as Form PF in the US, and the Stronger Super reforms in Australia. Fund managers have had to navigate their way through various operational and implementation challenges in order to comply with new reporting and disclosure requirements.
In Australia, the fund industry remains the world’s fifth largest, valued at US $2.3 trillion, and has experienced one of the highest growth rates of pension fund assets in the world. A number of key regulatory changes are being made in Australia to investment fund compliance.
Expanded product disclosure statements
Here, the focus has been on expanding disclosure information required in offering documents to potential investors through the funds’ product disclosure statements. The Australian Securities & Investments Commission (ASIC) has published the RG 97 regulation, which clarifies key fee and cost disclosure requirements for investment funds. This includes disclosure of both direct and indirect costs to investors from February 2017, and in periodic fund statements from January 2018.
APRA reporting framework
The Prudential Regulatory Authority’s (Australian PRA) superannuation reporting framework is also changing. New requirements were added from 1 July 2016, which require managers to submit a number of new reporting statements. These include statements of financial performance, derivative schedules and investment exposure concentrations. Also in 2016, new Australian rules come into force that include enhanced portfolio holdings disclosure requirements. Disclosure will now be required for the following assets:
• Number and investment level of each financial product or property allocated to the investment option;
• Name and number of units of that product or property;
• Number of units held in that product or property; and
• Price per unit and total invested.
Product dashboards
The new product dashboard rules change the information that needs to be provided for the fund’s investment options. Product dashboards now need to show the fund’s 10 largest choice investment options, as well as disclosing its portfolio of indirect and associated assets.
Attribution managed investment trusts
The new Australian attribution managed investment trust (AMIT) regime will provide qualifying managed investment trusts (MITs) with greater flexibility and more attractive tax treatment of their unit holders.
The AMIT regime, which commenced on 1 July 2016, allows qualifying MITs to ‘flow through’ taxable income to their unit-holders on an ‘attribution basis’, allowing MITs to attribute or determine the amount and character of the taxable income of the trust that each unit holder is assessed on.
This new tax treatment should make Australian fund managers more attractive and competitive internationally—in time for the new Asian fund passport regime, which comes into effect at the end of 2017.
It is expected that fund managers will have significant disclosure and documentation requirements under the new AMIT regime.
Meeting these enhanced global and Australian regulatory requirements represents a significant challenge for fund managers and their service providers. Globally-focused fund managers have been busy integrating and complying with multiple regulatory requirements from different global jurisdictions.
The cost of regulatory compliance is increasing. The average total cost for a medium-sized investment manager for compliance with all the new global rules since 2008 is US $6 million. This goes up to $14 million for larger fund managers. In Australia, the fund research firm Australian Fund Monitor has suggested that increased local fund regulation could be a significant cost burden.
The pressure is on fund managers to enhance their operational efficiency. However, there are a number of potential difficulties in managing the regulatory implementation process. Requirements around information, text and data gathering, templates completion and timeliness can all be complex issues.
For Australian regulations—like the enhanced PDS—there is a need to streamline text properly for the documents, as well as share content efficiently throughout the PDS and across the range of documents in the fund library.
As well as the challenge this represents, it can also mean opportunities for the best-prepared fund managers. The forthcoming Asia Region Funds Passport (ARFP) regime will allow compliant investment managers to market and sell their funds across a number of leading Asia Pacific countries, including Australia, Japan, South Korea and New Zealand.
Documentation and disclosure
Over time, fund managers are expected to face new disclosure requirements as part of ARFP. At Donnelley Financial Solutions, we’ve seen firms in the US and EU adopt content management solutions to keep on top of their data and enable them to scale effectively when new rules like KIID, PRIIPS KID and AIFMD Annex IV were introduced.
Best practices for driving adoption will sound familiar:
• Super user training: Teams have found it critical to train selected users as experts as well as basic users. ‘Super users’ provide support for basic users and maintain continuity if there is turnover.
• Steering committee oversight: Steering committees with vendor participation have formed and set critical metrics for success, especially in larger administrators where they are overseeing the implementation and then evaluating periodically the process improvement over time and the maintenance of the controls introduced with the software.
• Simplification of style: There’s too much volume and not enough time to tweak the style and format. Steering committees are focusing on simplifying style and making it consistent so they can minimise automated layout issues and maintain throughput.
An ever-increasing demand for robust and scalable content management and reporting solutions
The most successful solution to these regulatory challenges has been where fund managers work closely in conjunction with specialised partners to deliver a bespoke regulatory solution for their compliance requirements.
We’ve seen automated documentation and disclosure solutions significantly reduce regulatory risk, particularly as financial regulators will no longer accept spreadsheets from fund managers for their regulatory submissions.
The fund industry is increasingly focused on meeting a growing number of complex regulatory requirements, both locally in Australia and throughout the world.
At Donnelley Financial Solutions, we are seeing an ever-increasing demand for robust and scalable content management and reporting solutions.
Many of our clients see a 75 percent improvement in their document update process.
With a robust content management solution in place, their content is more consistent, data sets more organised, and custom workflows ensure that documents are created, managed and updated in the most efficient way possible. This allows for quicker turnarounds, reduced overall costs, and it is easily scalable.
In partnership, we help clients to meet their disclosure and reporting requirements, to be prepared for growth and ready for regulatory change, and to streamline their content and data sets in the process. A robust and dynamic content management solution is more important than ever for fund managers and can greatly assist the drive towards successful operational cost reduction and regulatory compliance.
In Australia, the fund industry remains the world’s fifth largest, valued at US $2.3 trillion, and has experienced one of the highest growth rates of pension fund assets in the world. A number of key regulatory changes are being made in Australia to investment fund compliance.
Expanded product disclosure statements
Here, the focus has been on expanding disclosure information required in offering documents to potential investors through the funds’ product disclosure statements. The Australian Securities & Investments Commission (ASIC) has published the RG 97 regulation, which clarifies key fee and cost disclosure requirements for investment funds. This includes disclosure of both direct and indirect costs to investors from February 2017, and in periodic fund statements from January 2018.
APRA reporting framework
The Prudential Regulatory Authority’s (Australian PRA) superannuation reporting framework is also changing. New requirements were added from 1 July 2016, which require managers to submit a number of new reporting statements. These include statements of financial performance, derivative schedules and investment exposure concentrations. Also in 2016, new Australian rules come into force that include enhanced portfolio holdings disclosure requirements. Disclosure will now be required for the following assets:
• Number and investment level of each financial product or property allocated to the investment option;
• Name and number of units of that product or property;
• Number of units held in that product or property; and
• Price per unit and total invested.
Product dashboards
The new product dashboard rules change the information that needs to be provided for the fund’s investment options. Product dashboards now need to show the fund’s 10 largest choice investment options, as well as disclosing its portfolio of indirect and associated assets.
Attribution managed investment trusts
The new Australian attribution managed investment trust (AMIT) regime will provide qualifying managed investment trusts (MITs) with greater flexibility and more attractive tax treatment of their unit holders.
The AMIT regime, which commenced on 1 July 2016, allows qualifying MITs to ‘flow through’ taxable income to their unit-holders on an ‘attribution basis’, allowing MITs to attribute or determine the amount and character of the taxable income of the trust that each unit holder is assessed on.
This new tax treatment should make Australian fund managers more attractive and competitive internationally—in time for the new Asian fund passport regime, which comes into effect at the end of 2017.
It is expected that fund managers will have significant disclosure and documentation requirements under the new AMIT regime.
Meeting these enhanced global and Australian regulatory requirements represents a significant challenge for fund managers and their service providers. Globally-focused fund managers have been busy integrating and complying with multiple regulatory requirements from different global jurisdictions.
The cost of regulatory compliance is increasing. The average total cost for a medium-sized investment manager for compliance with all the new global rules since 2008 is US $6 million. This goes up to $14 million for larger fund managers. In Australia, the fund research firm Australian Fund Monitor has suggested that increased local fund regulation could be a significant cost burden.
The pressure is on fund managers to enhance their operational efficiency. However, there are a number of potential difficulties in managing the regulatory implementation process. Requirements around information, text and data gathering, templates completion and timeliness can all be complex issues.
For Australian regulations—like the enhanced PDS—there is a need to streamline text properly for the documents, as well as share content efficiently throughout the PDS and across the range of documents in the fund library.
As well as the challenge this represents, it can also mean opportunities for the best-prepared fund managers. The forthcoming Asia Region Funds Passport (ARFP) regime will allow compliant investment managers to market and sell their funds across a number of leading Asia Pacific countries, including Australia, Japan, South Korea and New Zealand.
Documentation and disclosure
Over time, fund managers are expected to face new disclosure requirements as part of ARFP. At Donnelley Financial Solutions, we’ve seen firms in the US and EU adopt content management solutions to keep on top of their data and enable them to scale effectively when new rules like KIID, PRIIPS KID and AIFMD Annex IV were introduced.
Best practices for driving adoption will sound familiar:
• Super user training: Teams have found it critical to train selected users as experts as well as basic users. ‘Super users’ provide support for basic users and maintain continuity if there is turnover.
• Steering committee oversight: Steering committees with vendor participation have formed and set critical metrics for success, especially in larger administrators where they are overseeing the implementation and then evaluating periodically the process improvement over time and the maintenance of the controls introduced with the software.
• Simplification of style: There’s too much volume and not enough time to tweak the style and format. Steering committees are focusing on simplifying style and making it consistent so they can minimise automated layout issues and maintain throughput.
An ever-increasing demand for robust and scalable content management and reporting solutions
The most successful solution to these regulatory challenges has been where fund managers work closely in conjunction with specialised partners to deliver a bespoke regulatory solution for their compliance requirements.
We’ve seen automated documentation and disclosure solutions significantly reduce regulatory risk, particularly as financial regulators will no longer accept spreadsheets from fund managers for their regulatory submissions.
The fund industry is increasingly focused on meeting a growing number of complex regulatory requirements, both locally in Australia and throughout the world.
At Donnelley Financial Solutions, we are seeing an ever-increasing demand for robust and scalable content management and reporting solutions.
Many of our clients see a 75 percent improvement in their document update process.
With a robust content management solution in place, their content is more consistent, data sets more organised, and custom workflows ensure that documents are created, managed and updated in the most efficient way possible. This allows for quicker turnarounds, reduced overall costs, and it is easily scalable.
In partnership, we help clients to meet their disclosure and reporting requirements, to be prepared for growth and ready for regulatory change, and to streamline their content and data sets in the process. A robust and dynamic content management solution is more important than ever for fund managers and can greatly assist the drive towards successful operational cost reduction and regulatory compliance.
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