Fund Administration: Exploring the Tougher Road Ahead
Posted: Jun 24, 2015
The perpetually changing landscape of the financial industry paves the way for new opportunities and million-dollar returns. However, fund administration also covers a lot of challenges that keep organizations from reaching their financial objectives in an instant.
Topping the list is the heavy impact of domestic and international regulations on financial and operational stability of firms. According to a survey conducted by the Alternative Investment Management Association (2013), the hedge fund sector has already invested more than $3 billion on compliance costs alone, and nine out of ten managers expect their budget for regulatory to even double over the next five years.
Meanwhile, SWIFT’s whitepaper "Operational challenges facing investment managers in 2015" shed light on how regulations affect the productivity and overall growth of a company.
According to the research, investment managers have prioritized completion and submission of reporting templates required by different regulatory bodies including the Alternative Investment Fund Managers Directive (AIFMD Annex IV), the Dodd Frank Act (Forms ADV, CPO and CPO PQR), the European Market Infrastructure Regulation (EMIR), and the upcoming revisions to the Markets in Financial Instruments Directive (MiFID II).
Such pressure to meet regulatory deadlines and standards limit the time, effort and resources of administrators to meet client demands for new services and reporting.
Aside from compliance measures, another factor that slows down the financial growth is the administrative burden of checking the integrity of investors. With the passing of the PATRIOT Act in 2001, regulators have mandated the need to assess clients and counterparties to ensure that they are not laundering money, breaching sanctions or handling investments from corrupt politicians.
"Compliance with customer due diligence obligations such as KYC, AML, FATCA and TRACE has developed into probably one of the greatest challenges for fund managers, promoters, fund service companies, intermediaries, and investors," shared one respondent in SWIFT’s case study.
Not only do these procedures increase the workload, but they also affect client relationship. "It creates a lot of frustration," shared one manager. "Clients hate it, because we are making their lives complicated."
A proposed solution to this issue is the creation of "identity registrars" to verify and document the background of investors, and the issuance of "identity passports" that can prove their credibility in an instant.
However, according to the experts, other aspects that will remain problematic during the second half of 2015 are the inefficiencies in corporate actions processing, the rising importance of collateral management and a lack of standardization in post-trade processing of transactions.
Because of these challenges, about 25% of managers are now outsourcing fund administration services. If you are having a hard time dealing with these tasks as well, seek help from a trusted financial institution with years of experience in servicing asset managers of both domestic and offshore funds, leveraging proprietary cloud-based technology coupled with exceptional client care.
Leo Aranas is an online writer and blogger.