August 27, 2012
With UCITS IV just barely out the back door, UCITS V is on its way in the front door.
The publication of the draft UCITS V directive in July did not deliver the consistency that many of us had expected. There was a view developing that MIFID II, the AIFM Directive and UCITS V would form a triumvirate of truly consistent regulation covering financial advice, asset management and asset servicing, and what is clear from the latest draft is that this ‘joined-up thinking’ and consistency in approach has not materialised in the ways we had maybe expected.
UCITS V itself has three core areas of impact:
- To clarify and alter the role & responsibilities, eligibility, and liability of depositories/custodians
- To deal with management company remuneration
- To broaden the scope of regulatory sanction available to the member state regulators.
One of the most fundamental changes proposed in UCITS V is that a fund appoints a single custodian. The latest draft also speaks strongly to the delegation of custody to third parties – with specific direction on updating the prospectus for a UCITS to disclose any delegation of the safekeeping function – but crucially the primary custodian carries the liability can. This is the section that is attracting the greatest focus of the lobby groups right now. In the last draft, it is proposed that custodians will now be liable for any loss suffered by the UCITS or its investors, unless it can prove that the loss was caused by “an external event beyond its reasonable control, the consequences of which would have been unavoidable despite all reasonable efforts to the contrary”.
UCITS V also sets out to limit the firms that can carry out the custodian role for a UCIT, such that only an EU-authorised credit institution, or investment firms authorised under MiFID may act as a custodian to a UCITS, although I am aware of some very serious and sustained lobbying from ALFI and IFIA to change the proposed ruling, and to bring it into line with compromises reached on the AIFM Directive.
UCITS V also proposes new rules on remuneration for management companies – consistent with those in the AIFM Directive – the UCITS V directive proposes that management companies implement remuneration policies that are aligned with effective risk management and which discourage disproportionate risk-taking – so that remuneration is aligned with the investor’s best interests.
UCITS V also seeks to expand and synchronise the investigative powers, oversight capabilities and administrative sanction armoury of the member state regulators, who will each be required to introduce catalogues of sanctions and punitive measures as part of the national process of transposition.
The earliest point we could expect enforcement will be sometime in late 2014 as there is generally a two year process of final review and transposition into national law in each state – there is also provision for a “grandfathering” period where, for example, a UCITS is currently using a custodian that does not match the criteria laid out in the new directive.
I do not see UCITS V having the same impact on data management strategies and infrastructures that UCITS IV and KIID had as the pain is more focused on the custodian.
0.000000
0.000000
1 Comment | 
Data Quality, Regulation | Tagged: AIFM, ALFI, IFIA, KIID, MIFID KID, UCITS, UCITS V | 
Permalink
Posted by Ronan Brennan
August 23, 2012
This year we have witnessed the flood of Key Investor Information Documents for UCITS in the marketplace, yet the bigwigs in the EU are already now proposing to broaden the initiative, and are proposing the production of a new KID (Key Investor Document) for all Packaged Retail Investment Products – or – PRIPS for short.
Since the definition of a PRIP encompasses UCITS funds, this new requirement will also apply to UCITS – although Brussels indicates a five year derogation will apply to UCITS to allow them get over the old KIID experience! The ultimate aim is, however, for all investment products to be accompanied by new KIDs in an attempt to make all investment products as comparable as possible.
The new KID will differ from the old KIID on a number of points, and really these differences will exist only to encompass the various investment product flavours that fall under the PRIPS umbrella, hence the old KIID was deemed to be not fit for purpose.
The new KID documents will be expected to contain answers to a set of “standard” questions. The Commission says these include:
- What is the investment?
- Can I lose money?
- What are the risks and what might I get back?
- What are the costs?
The new KID, like the old document, will contain a risk indicator directly comparable with the synthetic risk and reward indicator for UCITS.
The new documents will also include information on the real costs of the various products – so that they can be compared in a neutral and objective way.
So the new documents will be broadly similar to existing KIID documents, but there will be specific changes to account for the fact that UCITS have properties that other investments do not have, and likewise there are other investment vehicles that have features and design elements not found in UCITS, such as insurance benefits or fixed investment terms.
Firms which have already gone through the mill with KIIDs for UCITS, and have invested in their data management and document production infrastructure will be better positioned to deal with rolling out the new KIDs across all of their investment products, but those who have not…. well they are in for a rude awakening – as 2012 has been a really tough year for many on the KIID front! So we can expect the data management impact of the new KID for PRIPS to be quite severe indeed.
0.000000
0.000000
1 Comment | Data management, Data Quality, distribution, KIID, Regulation, Technology, UCITS | Tagged: investment funds, KID, KIID, PRIP, PRIPS, SRRI, UCITS | Permalink
Posted by Ronan Brennan
August 13, 2012
Regulation is a really key topic of conversation within the investment fund industry, and not without good reason!
On a recent webcast I did on the impact of regulation on data management strategies in asset management I explored the reasons why the global regulatory community have received an enormous level of flak since the 2007/2008 market implosion.
Clearly, the charge levelled at the regulators is that they failed to maintain a stable market – by not having a clear view of the systemic and systematic market risks that were at play.
The result is that we are entering a period of unprecedented demand for oversight and transparency – with one of the key challenges being adoption and migration to operating models that can keep up with the rapid change of the industry landscape – without leaving behind a legacy of manual error prone processes and key knowledge data sets that are poorly maintained.
So it is not without reason that the media and investment community alike are keenly interested in the regulatory backlash that we are witnessing. Regulation was always a driver within the industry, but more recently its prominence has increased because the fines are getting bigger, and the reputational damage is all the greater, due to the increased coverage in the media.
Recent news articles on Ignites are indicating the level of frustration with regulation is growing e.g. today we say the headline “KIIDS an unhelpful distraction“, last week we saw “UCITS IV, V, VI…stop now, says the market“
Over the coming days and weeks and I will explore this theme in-depth and publish some of the survey results from the webcast…
0.000000
0.000000
Leave a Comment » | Data Governance, Data management, Data Quality, KIID, Regulation, UCITS | Tagged: data management, KID, KIID, manual process, Regulation, UCITS, UCITS IV, UCITS V, UCITS VI, webcast | Permalink
Posted by Ronan Brennan
April 27, 2010
I see a few interesting developments on the horizon with respect to data and the various financial regulation bodies.
I have kept my musings deliberately brief – if anyone is looking for more in depth commentary let me know and I will do a follow-up post on that topic…
Read the rest of this entry »
0.000000
0.000000
1 Comment | Data Quality, Regulation | Tagged: 12b-1, 2(a)-7, 40 act, accuracy, asset management, breaking the buck, canada, CESR, client reporting, compliance, CSA, data, Data Quality, fee reform, financial regulation, FINRA, fund facts, fund rules, ific, Ignites, investment companies act 1940, Key Information Document, KID, marketing, Mary Schapiro, middle-office, MiFID, money market, Morgan Keenen, point of sale, RDR, Regulation, regulator, reporting, retail distribution review, SEC, transparency, UCITS, UCITS III, UCITS IV, UK, US | Permalink
Posted by Ronan Brennan
April 13, 2010
For too long asset managers have been focusing on their data warehouse initiatives, often spending many years building them out, by which time the company in question has moved on and acquired other businesses with new data silos, warehouses, databases, data marts – you get the message – just as one data warehouse project finishes a new ‘enterprise data warehouse’ project is needed to bring the latest silos under the same umbrella. So the “information stores” which a business uses to deliver data to the external world are constantly changing – which leads to a lot of client and vendor related unhappiness.
At the same time the client reporting teams have been working away to build a client reporting infrastructure to deliver bespoke glossy reports, often without taking into account that a client report that is generated with poor quality data, is still a poor report, even if it is completely tailored to the client needs and is very flashy and glossy to the eye of the (be)holder. Client reporting vendors are left to carry the can to a large extent – the asset manager expects the client reporting vendor to clean the data up, while the client reporting vendor expects the asset manager to deliver clean data !
The marketing teams are busy to trying to automate the production of the product fact sheets – again the fact sheet automation vendor community place a strong reliance on good quality data being submitted to the process, while the asset managers to a large extent assume the data is good quality, why else would they allow it enter an automation process?
Micro-site content publication suffers from the same ills as the fact sheet automation process, except it is even more acute as the data is expected to be updated daily, and not monthly or quarterly.
The legal and compliance teams are at the same time busy working with their financial printers getting the simplified (or summary) prospectus, KID (if you’re in UCIT IV prep mode), annual/semi-annual reports and any other regulatory product documentation automated. Again though, the financial printers expect that they receive clean and timely data.
So what we have is an industry that unwittingly expects it’s vendors to work with poor quality data to generate high quality output – i.e. it is set up to fail miserably when it comes to getting good quality (= timely, consistent and accurate) data to the end investor, be that via a custom client report, a product fact sheet update, a web page view or a regulatory document.
If asset managers applied the same principles that network engineers apply to physical networks to protect the integrity of their inner network, by applying an “information firewall” that presented all client facing data to each of the vendors that required access to that data they would have; (a) a much happier vendor community and (b) superior content being presented to their end clients.
So an information firewall for investment product data should do some or all of the following;
Read the rest of this entry »
0.000000
0.000000
Leave a Comment » | Data Quality, Regulation, Technology | Tagged: accuracy, annual report, asset manager, automation, business rules, client facing data, client report, client reporting, compliance, consistency, data aggregation, data mart, data model, data owner, Data Quality, data quality management, data silo, data warehouse, EDW, enterprise data warehouse, fact sheet, factsheet, factsheet automation, financial printer, information firewall, information store, institutional, investment management, Key Information Document, KID, legal, micro-site, MIS, regulator, regulatory documents, retail, simplified prospectus, summary prospectus, tear sheet, timeliness, UCITS, vendor, workflow | Permalink
Posted by Ronan Brennan
