Scaling The Regulatory Landscape

All licensed asset managers are different, they adopt their own unique investment strategies within asset classes and have investors in numerous jurisdictions. What unites them is the need for robust compliance frameworks and the regulatory and reputational impact to their business if they don’t implement AIFMD or MiFID correctly.

The Challenge

In a complex regulatory environment, asset managers and financial organisations don’t always have the expertise, resources or capacity to implement a compliance framework to the expected standards. Regulatory reporting and robust governance structures are time consuming and resource intensive but are important to get right. Professional and international investors are increasingly focusing on compliance frameworks as part of thorough due diligence processes. A robust compliance framework protects the organisation from regulatory risks and making bad decisions.

Comply or die

You will lose clients if your compliance function does not love up to expected standards.

The Solution

Falk can assist existing compliance functions as a partner in strengthening their governance framework, within financial services and asset management. The team also provides outsourcing compliance functions for AIFM and MiFID asset managers where we do the work for you. Outsourcing compliance expertise ensures asset managers can utilise quality compliance support, from an experienced team, and focus on their core business and investment strategy.

The responsibility for compliance resides with the company and Board, but you can still strengthen the independent oversight by outsourcing compliance services

Leveraging compliance expertise with experience of meeting professional and international investor expectations is beneficial to meet the high standards expected.

Robust Governance

The compliance function has an important role within asset managers and financial service providers following their license approval. The guidelines and routine descriptions included in the license application pack for AIFMs and MiFID organisations are generally at a high level and should be reviewed and brought down to a more practical level once the license has been granted.

It’s important to implement practical and robust compliance processes quickly which ensures they are tailored to the nature of the business from the start

The actual work for handling important topics such as anti-money laundering, conflicts of interest, personal trading, and marketing after the license has been approved. These are the immediate steps to take:

• Implement a well-defined second line function and assign responsibility for important control tasks and compliance reviews of business activities
• Identify and document all risks relevant to the business and develop a compliance plan
• Build efficient reporting systems that ensure correct data and timely regulatory reporting and establish quarterly compliance reporting to the Board of Directors

A Culture Of Compliance

Having relevant control processes and a framework that employees understand is vital. Performing an advisory role ensures the compliance function is approachable to employees and has authority and visibility within the business. A compliance function that has practical experience and understanding of the business can explain regulatory expectations and provide guidance on the roles and responsibilities of individuals involved in key processes.

The Role Of Compliance

The compliance function must be independent of the company’s management and other business areas in the organisation. Those performing compliance tasks should therefore not normally be exercised by individuals who are involved in the performance of the services and functions to be controlled. The compliance framework must fit the nature, scope, and complexity of the Company’s operations. AIFMs and MiFID organisations must complete ongoing regulatory reporting.

The compliance team should have the necessary authority, resources and expertise

Compliance must adopt a risk-based approach and should carry out a risk assessment of the company’s entire operations and incorporate into the compliance plan.

All Regulatory Journeys Start With A Plan

The compliance plan forms the basis for the compliance work for adherence to regulatory requirements and control measures within the organisation. The plan should contain information about the scope, content, and frequency of the control measures performed together with a timetable and indication of prioritisation.

Based on the nature of the risks, and business complexity, controls should be evaluated on an ongoing basis

The compliance plan should be an active work tool, incorporating regulatory questions, challenges and incidents that arise from the business into the risk assessments for the plan.

Compliance Reporting To The Board

The policies and procedures used in the license application must be approved by the Board of Directors. These should be updated and brought down to a more practical level with clear actionable responsibilities, regular monitoring and assessment of controls. Its important that the organisation follows what is written in the policies and procedures which should be tailored to the nature of the business.

If it’s not written down, it doesn’t exist

To ensure the Board exercises its responsibility for supervising the organisation’s activities, regular information from the compliance function detailing follow-up of regulations, control arrangements and incidents is required. The Board should receive a quarterly compliance report detailing a check list of all the relevant regulatory updates over the quarter. The report should include:

• Details of incidents raised during the period and mitigating measures implemented to prevent a repeat occurrence
• Important updates to existing guidelines and routines
• Results of compliance monitoring and reviews as set out in the compliance plan

Conclusion

Outsourcing compliance expertise ensures asset managers can utilise quality compliance support, from an experienced team, and focus on their core business and investment strategy.

About Falk

The team has experience with advising asset management clients within listed markets, private equity, real estate, infrastructure, and venture capital. We also work with fund management structures, UCITs, AIFMs and AIF structures based in Norway, Ireland, and Luxembourg.