Tackling the AIFMD Transparency Reporting Challenge

These are tumultuous times in the Alternative Investment industry. Alternative Asset Managers are in the midst of determining how to prepare for compliance with the AIFM directive. Considering that AIFMD passed into law in July 2013, many firms appear to be handling their readiness with a more relaxed approach while they take advantage of the one-year grandfathering period. During this time, they plan to assess their peers’ approach as a benchmark and look for additional rule clarifications from ESMA’s recently published final guidelines with regards to the transparency reporting needs that lie ahead.  In fact, as I was writing this, the guidelines were published and then I noticed an interesting article in Ignites Europe that discussed whether this guidance will speed the rate to action.

There is forward momentum though. The Fund Administrators or Depositaries have been hard at work ensuring that they can comply and meet the stringent requirements that cover asset keeping, cash flow monitoring and oversight duties.  Many administrators in the major offshore centres of firms based in Luxembourg and Ireland are preparing by adding additional head count to bolster their oversight across depositary, risk and compliance teams.

As well, technology vendors specialising in regulatory reporting solutions for the fund industry are in the midst of finalising their AIFMD Transparency Reporting software solutions designed to help AI managers and administrators address the reporting problem.  They, along with the rest of the industry, will be able to make decisions about how to solve the transparency reporting requirements with technology now that the ESMA guidelines are in play.

Although all of this waiting for guidance often seemed like one step forward and two steps back, finally, some action can be taken.  One area of focus can be considerations around AIFMD Transparency Reporting so that a solution can be adopted and forward momentum truly occurs.  I recommend asking the following questions as you research and select the best possible solution.

  1. Is the vendor experienced in the industry and a proven provider of fund-related regulatory solutions globally?
  2. Do they offer a hosted and SaaS-enabled solution with workflow and collaboration enabling easy access and task management?
  3. Does the solution automate and provide the majority of the calculations?
  4. Is a filing mechanism included that will file reports with any European regulator and provide confirmations with additional notifications to your local exchange where required?
  5. Has an audit of the solution been conducted by an external consultant to validate the calculations and ensure the platform is fit for purpose?

The challenges and the cost implications facing many AIFMs and administrators who want to offer transparency reporting will lie in the approach taken to address this issue.  Many have yet to make a decision on their approach, whilst others are buying products blind and lastly a very small minority have made the big decision to build. Although past experience has shown that IMs are better off focusing on investor returns and leaving software development to experienced technology firms.

The implementation of the AIFM directive is still a work in progress and will continue to occupy time, monetary investment and experienced resources.

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