Regulatory Reporting - Key considerations for Fund Managers and Service Providers - Grant Thonrton

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Member of Grant Thornton International Limited (GTIL).
Authorised by Chartered Accountants Ireland (“CAI”) to carry on investment business.
Regulatory reporting -
key considerations for fund managers
and service providers
The growth of numerous regulatory initiatives
over the last few years has led to a number of
new reporting requirements for fund managers
globally. These include Form PF, AIFMD and
EMIR. Fund managers and service providers
are currently attempting to navigate their way
through various operational and
implementation challenges in order to comply
with these new reporting requirements.
In Europe the focus has mainly been on the
Annex IV reporting required under the
AIFMD regulations. This report is filed
periodically, according to the AUM of the
manager, with most large managers filing on a
quarterly basis. The report itself is challenging
in that it consists of more than 600 potential
data points and the answers required are more
rigid and prescriptive than the equivalent
Form PF in the United States.
Outsourcing to service providers
Most fund managers are looking to their
administrators to provide them with a
regulatory reporting service and remove most
of the administrative burden involved in
gathering and submitting the data to
regulators.
This applies not only to AIFMD, some
managers are also asking their administrators
to report their derivative trades, as required
under the new EMIR regulations introduced
in February 2014. The EMIR reporting can
consist of up to 80 data points for every
derivative trade and must be submitted to one
of a number of trade repositories on a daily
basis. For the AIFMD reporting,
administrators are generally working in
conjunction with specialised system vendors, a
large number of which are now offering an
AIFMD reporting solution, in what is
becoming a crowded market.
The favoured operational model seems to be
where the administrator will gather the data
required from the various internal and external
sources, before completing a sanity check to
ensure accuracy and then passing the data to
the system vendor to be formatted into the
regulatory scheme.
Once it is ready for submission, the
investment manager will then complete a final
review and approval, before the completed
report is sent to their national regulator.

Challenges in data management
There are a number of potential difficulties
relating to managing this process. For
administrators, the challenge will be to capture
the correct data from different sources for
regulatory submission. This will include their
own accounting and valuation data, external
data feeds from brokers, counterparties and
prime brokers, as well as data from the
investment manager themselves.
Ideally fund managers will want a straight
through process, whereby the data is gathered,
reviewed and submitted to regulators with an
absence of manager involvement or manual
interference. This model is unlikely for a
number of reasons.
Substantial checks will also have to be built
into the regulatory reporting data management
process. Administrators will need to reconcile
external data to their own records and
managers will also need to reconcile the final
regulatory report to their own shadow books
and records.
This means multiple system processes and
data outputs will need to be analysed and
enhanced, in order to manage the capture and
integration of the relevant regulatory data.
Administrators will have to choose the correct
platforms to allow them to collate all this big
data easily. They will need to examine how
best to manage dataflow, particularly where
the data is being used to populate a number of
different regulatory filings (e.g. AIFMD and
EMIR, or even Form PF).
Cyber security will also be a key issue, as
administrators centralise large amounts of
confidential and sensitive proprietary hedge
fund data on their clients. Administrators will
face challenges in enhancing their security
controls. Moreover, the U.S. Securities and
Exchange Commission has recently indicated
that they will examine fund managers security
controls in particular to prevent and detect
cyberattacks. This focus will clearly have
implications for managers and administrators
alike.
Financial reporting – a natural home
for regulatory reporting?
In addition, one of the key questions for
administrators is where do they put their
regulatory reporting offering within their
existing operating model?
The financial reporting department would seem
to be the natural home for these various
regulatory reporting services (e.g. AIFMD,
FCA, CBI, EMIR etc.). This department already
works closely with investment managers and
external parties to gather the year end fund data
and back up required for them to complete the
annual financial statements. Regulated managers
are also being required to provide more
disclosure in their financial statements, meaning
financial reporting departments will be working
closely with them to gather and verify this
additional required data.
The regulators’ view
After a slow start the main fund regulators in
Europe are now moving forward strongly with
implementing the AIFMD reporting
requirements. The Financial Conduct
Authority (FCA) in the UK is already
accepting Annex IV reporting from authorised
UK AIFMs. They have been flexible about the
format in which it is received, as they are in
the process of rolling out a new reporting
technology solution later this year.
In Ireland the Central Bank of Ireland (CBI)
recently confirmed it will begin requiring
Annex IV reporting from authorised AIFMs
as at June 30 2014. All other in-scope EU and
non-EU managers will be required from
September 30 2014. The CBI is getting ready
to initialise testing with the industry over the
summer. For the 28 national EU regulators
the key reporting date is December 31 2014.
This is the first date for which the Annex IV
reporting will be sent by the national
regulators to ESMA (early next year).

The ESMA question?
The interesting question then will be – what
will ESMA do with all this hedge fund data?
The stated aim is to give the regulator a better
overview of the industry and assist in
identifying any growing asset bubbles or
potential systemic risk. ESMA will need to
develop a wider analytical framework to assess
existing and potential future issues. The results
of their analysis will likely impact future
regulatory requirements and will be watched
closely by the European hedge fund industry.
Contacts
Ray Kelly
Director – Financial Services Audit
T +353 (0)1 680 5981
E ray.kelly@ie.gt.com
Devin Ford
Director – Financial Services Business Consulting
T +353 (0)1 436 6518
E devin.ford@ie.gt.com
Mike Harris
Partner – Cyber Security
T +353 (0)1 436 6503
E mike.harris@ie.gt.com
@GrantThorntonIE
24-26 City Quay, Dublin 2
Offices in Dublin, Belfast, Cork, Galway, Kildare and
Limerick
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result of any material in this publication.
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Regulatory Reporting - Key considerations for Fund Managers and Service Providers - Grant Thonrton

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