Data, Automation Are Key to Meeting New Compliance Rules

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As global compliance and regulatory requirements increase at a breakneck pace, fund managers are embracing a wide range of strategies—ranging from challenging rules to adopting automated solutions and improved data management to increased outsourcing—to keep pace across jurisdictions.

“If you want to succeed, and not be reactively responding to each new kind of reporting type, you need to get your data in order,” said Dan McNamara, our Chief Strategy Officer, during a panel discussion, “Navigating the Global Regulatory & Compliance Landscape,” at our recent Global Alternatives Summit in Miami.
The panel, with David Nissenbaum, partner at Schulte, Roth and Zabel, and Adam Reback, a partner at Optima Partners, opened by discussing a lawsuit filed in September by six alternatives industry groups against the US Securities and Exchange Commission. The suit claims the SEC exceeded its authority when adopting new rules in August governing private fund advisers that are intended to improve accountability and increase transparency for investors in that market.

And looking to the growing international markets, increased US regulation—along with compliance and infrastructure costs—creates a higher barrier of entry to US markets for European and Asian fund managers. “The fact they have to integrate with their home regulatory regime and what’s expected here, it scares them off and it’s very expensive,” David said.

Preparation and automation will be key factors in addressing increased global regulation. Fund managers are not required to comply with regulations until they are implemented, but it is critical to prepare and “be ready to flip the switch” to comply by implementation dates, Adam said.

To prepare, Adam said clients are working with service providers and vendors to examine procedures, identify gaps, build new processes and examine “where the data lies, who has that data, who’s in charge of that data, and how are we going to harvest that data to get it into the proper filings?”

Clients are moving toward automated systems and outsourcing to navigate data management and regulatory and disclosure reporting, including investor terms, fund expenses, and fees.

“We have a lot of discussions with clients that are managing multiple admins, and we’re providing services across multiple platforms, and a lot of that is standardization and management,” Dan said.

Going forward, manual processes will need to be replaced. “With the new rules coming into play, and the demands of those rules, we’re at a tipping point as an industry where we have no choice but to leverage some type of automation and some type of data gathering in order to meet the requirements,” Adam said.

And as funds continue to face continued cost pressures, outsourcing will be critical for ensuring efficiency, transparency, and standardized solutions. “When I take a look strategically at what our clients are facing, the more you can outsource the better,” David said.