CSS Successfully Facilitates Form N-CEN Filings for Clients
NEW YORK — Compliance Solutions Strategies, a leading global RegTech platform that supports financial services firms in navigating complex regulatory requirements, is pleased to announce it has successfully assisted its clients in filing Form N-CEN.
The filings were made on Sept. 13 through Consensus, an award-winning CSS regulatory reporting and filing platform. Clients are also supported by CSS Best Practices, a team of regulatory attorneys, fund accountants, and data specialists who leverage their expertise and industry relationships to deliver comprehensive regulatory solutions, answer client questions, and communicate with regulators.
“We are delighted to have led a successful filing of a leading asset manager with hundreds of mutual funds and over $500 billion in AUM,” said CSS CEO Jim Casella. “The complexity of the filing and its resounding success assures our client base that we are well prepared for live filings of Form N-PORT when they commence in April 2019.”
Form N-CEN replaces Form N-SAR, and requires annual reporting of certain census-type information by registered investment companies to the SEC. Form N-CEN filers must submit their reports in a structured XML data format, which enables the SEC to more effectively collect, aggregate, and analyze the reported data. The compliance date for Form N-CEN was June 1, 2018 for all funds.
CSS will be filing Form N-CEN for numerous clients who continue to face increasing regulatory requirements under the SEC’s Reporting Modernization. Using Consensus, clients can file Form N-CEN and Form N-Port filings to the SEC in the required formats.
About Consensus
Consensus regulatory management system is an award-winning platform used by investment managers for a repeatable, reliable, and automated filing process. It supports filings for AIFMD Annex IV, CPO-PQR, Form ADV, Form N-CEN, Form N-PORT, Form PF, Solvency II, TIC Forms, and more.
About CSS
CSS is a leading RegTech platform and provider of technology-enabled regulatory and compliance solutions to the global financial services industry. The CSS RegTech platform provides a comprehensive offering encompassing regulatory reporting, data management, outsourced compliance management services, compliance workflow tools, shareholding disclosure, trade monitoring, trading analytics and cybersecurity solutions. CSS focuses on serving the global financial services industry and collaborates with a large client base across asset managers, alternative investment funds, investment advisors, broker-dealers, banks and insurance companies. The Company maintains a global footprint across both the United States and Europe with offices in locations including New York City, London, Dublin, Amsterdam, Paris, Stockholm, and other U.S. cities. For more information, please visit www.compliancesolutionsstrategies.com or follow CSS on Twitter: @CSSregtech.
Contacts
Melissa Maleri, CSS Executive VP Global Marketing – mmaleri@compliancesolutionsstrategies.com – 860-596-8127
10 Rules for Marketing Alternative Funds
When it comes to managers of alternative assets, it seems there’s a bit of a trust problem. According to a recent CFA Institute survey, for example, trust in hedge funds was 59% while trust in other alternative investment managers was only 60% among institutional investors. Those numbers come in far below institutional investors’ trust in mainstream managers, which stands at 72%.
So what can alternative asset managers do to build trust while maintaining compliance? Adam DiPaolo of Ascendant Compliance Management, a CSS Company, and CFA Institute’s Sidney Hardee have written a guidepost with 10 commonsense rules, including:
“Never use misleading performance results, third-party rankings, or awards in marketing materials. That means always deduct advisory fees, disclose the limitations of the benchmark used, and explain whether the performance results are hypothetical, backtested, or actual. In many cases, the same results, rankings, or awards can be included as long as they are accompanied by adequate disclosures.”
You can read the entire post, “10 Rules for Marketing Alternative Funds,” by clicking here.
Data Breach Prevention and Response
According to the Investment Firm of the Future, a report published by CFA Institute earlier this year, 24% of the organization’s members rated cybersecurity as their firm’s top technology priority.
With the myriad challenges facing investment professionals in 2018, that’s a striking number.
What to do? E.J. Yerzak, Director of Cyber IT Services for Ascendant Compliance Management, a CSS Company, and Shield, a CSS solution, recently sat down with CFA Institute to discuss planning, protocols, prioritization and more.
A short excerpt:
“It’s one thing to have a documented plan on paper. Until you put it to the test with war games or tabletop exercises, you may not realize that there are some unforeseen situations that may arise.
War-gaming your incident response plan can do wonders for assessing how reasonable it is. Again, you can’t anticipate everything under the sun, but have you anticipated all likely scenarios?
When you start putting the incident response plan to the test . . . someone at the table may say, “Hey, what about this system over here? Our series of five steps here didn’t anticipate that we need to pull backups from system A, and that system A can’t talk to system B unless we’ve done steps one, two, and three over here.” Things like that are important to try to work through in advance.”
You can read the informative interview, “Cybersecurity: The Barbarians are at the Gate,” by clicking here.
For more information on CSS’ cybersecurity solution Shield, cliquez ici.
The Regulatory Road, Part II: The Path Less Traveled
Investment managers often choose between a tactical or strategic approach to regulation. Tactical responders typically handle each new regulation separately, while strategic firms take a more holistic approach to compliance. Firms that choose a strategic response where all reporting is handled by a centralized team or single vendor see increased efficiency, simplified workflows, and a deeper compliance knowledge-base.
With firms seeing so many benefits from a strategic approach to regulation, why have investment managers been unable to unite and adopt a similar approach across the industry? While partnering at an industry level to exploit obvious strategic opportunities would surely benefit investment management firms, there are factors working against this change, including an inability to embrace utilities and the limits of existing working groups.
Similar to how electric companies and water suppliers work to provide standardized and low cost services to a large number of customers, regulatory utility services could introduce efficiencies across the investment management industry. However, there are several barriers working against widespread adoption of regulatory utilities:
- The utility community is fractured and at times has too narrow a viewpoint to provide a strategic response across a broad range of target regulations. Only with greater engagement of investment managers will we see a consolidation of utilities as commercial pressures take their natural course.
- The competitive nature of the utility community and competition laws both work to prevent the rise of a single solution. While the vendor community encourages the investment community to act for the greater good, they cannot come together and appoint a common vendor to serve the entire industry without running into business pressures and legal issues.
- The profile of compliance officers and analysts has risen over the last several years, but there has been a corresponding surge in responsibilities, leaving little time for introspection and long-term planning that could result in a unified embrace of standards to be used across all utilities.
Separately, the investment management industry has done a great job establishing working groups – specific groups set up in the U.S. to coordinate responses to SEC Rule 22e-4 (Liquidity Risk Management), and similar groups established in Europe to coordinate responses to Solvency II, PRIIPs, and various sub-groups for the myriad of MiFID II topics.
This investment in working groups is notable, but at times also notably lightweight. Working groups are staffed mainly by trade-body employees and receive only part-time personnel (and accompanying expertise) from firms. Contributions to working groups are uneven, with some firms happy to look on from the sidelines as other firms devote vast amounts of resources. Driving a strategic approach to regulation across the industry would require a significant increase in trade body resources to support additional full-time employees with bespoke expertise and a new emphasis on responding across multiple regulations.
Today, the industry has moved on from the viewpoint that the response to regulation provides a competitive edge; regulation is simply a cost of doing business. The ultimate client is the investor, who is paying for the same service multiple times and is getting a raw deal. The industry must collectively work in tandem with greater levels of investment in seeking out the types of solutions that move away from the tactical and embrace the strategic opportunity to lower the costs of response, embrace efficiencies, and simplify workflows.
To read Part I of the The Regulatory Road, cliquez ici.
The Regulatory Road, Part 1: Strategic vs. Tactical
A strategic approach to regulation in the investment industry is frequently championed in financial news articles and blogs. The majority of these missives urge investment firms to reconsider the traditional, tactical approach to compliance that results in a web of vendors and responses to regulatory reporting requirements.
Firms that respond tactically to regulation handle each new reporting requirement separately, rather than as part of a more holistic approach to compliance. These firms typically issue a request for proposal (RFP) to find the best vendor for a specific regulation. The RFP is tightly scoped around the needs of the new requirement, with little attention paid to how it relates to other reporting. This approach leads to the best value response to the directive at hand, but creates greater costs over time because of the inevitable overlap between past, present, and future reporting requirements; our analysis shows the incremental increase in cost associated with a tactical response that individually handles each regulation is as high as 40 percent.
Choosing a tactical response results in investment managers having a vendor for each regulation they are subject to. In a tactical environment, 10+ vendors can be interrogating the same data sources, demanding technical integration resources, and requiring assistance from data analysts. In essence, it’s an inefficient mess of data flows, exception management cycles, and expensive resources tied up in repeated work.
In working with vendors, tactical responders not only incur additional costs, but also absorb extra vendor risk. Tactical vendors tend to focus on a narrow set of regulations and often emphasize technical knowledge over regulatory expertise. Many of these vendors are also new market entrants, often surviving from one venture capital funding round to the next.
By contrast, investment managers who opt for a strategic response to regulation often choose a vendor partner who can create reporting efficiencies and offer broad expertise. The list of vendors with a strong strategic slant is short, but these firms share some common DNA:
- They acquire and develop compliance and regulatory expertise. Strategic vendors hire regulatory attorneys, former regulators, CFAs, and those with back- to front-office experience to ensure they have the deep regulatory knowledge-base required to swiftly respond to compliance issues.
- They invest heavily in forward-looking research. Strategic vendors constantly explore how the compliance industry is changing to ensure their solutions are ready for what’s next.
- They promote data models that can handle multiple reporting requirements from a single source. Strategic vendors identify where reporting requirements overlap so they can leverage a common set of data across multiple outputs.
At CSS, we deliver strategic compliance and regulatory vendor services. We recognize that investing in a strategic response is crucial for the investment firms we service, and we invest heavily in knowledge, technology, and data to ensure our clients can react to the demands they face today, as well as the challenges coming tomorrow.
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Tactical Approach
- A new vendor for each regulation
- Prepare data sets multiple times to meet each vendor’s requirements
- Each vendor has knowledge in only one area
- Work with many smaller vendors, which introduces additional risk
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Strategic Approach
- One vendor handles all regulatory reporting
- Use a single data set across all reporting requirements
- Chosen vendor offers broad expertise across the regulatory landscape
- Partner with a well-established vendor to gain peace of mind and additional security
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When Policies, Procedures and Testing Protocols Aren’t Enough…
The Compliance Program Rule continues to be a powerful tool for SEC enforcement, recently used by the SEC to address trading away in wrap accounts, misappropriation of retail client assets, and the misuse of an omnibus account. Advisory firms had written policies and procedures and testing protocols, but they were not good enough; are yours?
In the wrap account case, the registered investment adviser, which was the sponsor of wrap programs, failed to timely gather and disclose all material facts relating to “trading away.” Even though the RIA performed manager and trading reviews, had a best execution committee, and had recently improved its due diligence and disclosure processes relating to the wrap accounts and transaction cost analysis, the SEC demanded more.
In the misappropriation of retail client assets case, the dual registrant failed to catch five employees who were stealing money from client accounts. The dual registrant had a supervisory framework in place to oversee its representatives, and had automated and manual controls, but with the volume of transactions and client activity, the framework failed.
In the omnibus account case, an investment adviser representative made trades for himself and clients in an omnibus account set up for block trading, allocated shares late in the day after watching changes in price, and placed a greater proportion of profitable trades to his and other favored accounts. The firm had policies and procedures which required that allocations be based on average price and be fair and equitable to all clients. But, these were not effectively implemented, and pre-trade documentation was insufficient.
In each of these cases, the firm had an established compliance program, with written policies and procedures and testing. Nonetheless, the Commission found the respondents violated the Compliance Program Rule due to their respective failure to adopt and/or implement policies, procedures, and controls that were reasonably designed to prevent and detect the wrongdoing.
So, when is your testing enough to prevent wrongdoing, or at least prevent enforcement proceedings?
For advisers who have wrap accounts, the Settlement Order provided relatively rare detail, and we recommend you read this in full and test your processes against this detail. We can assist with the testing. We also have a more detailed write-up of this case in our regular SEC enforcement and news alert Compliance Matters, to which you can subscribe. Contact our sales department or your Ascendant consultant.
For other topics, while a Compliance Program cannot necessarily stop every rogue actor, there are missteps that a Compliance Program can catch, which is why we regularly address these details in a risk assessment or annual review and stress adherence to process. For example, the dual registrant missed other red flags, including using personal email addresses for client communications, using improper account forms, and engaging in unauthorized outside business activities. If not representative of fraud or wrongdoing, they at least show lack of compliance care, and should have put the firm on notice to further monitor certain tasks and/or employees. Further, a good Compliance Program has both automated and manual controls and reviews. But, proprietary tools and automated systems must be assessed regularly, for technical issues and to address weaknesses that may not be keeping up with demands.
Regarding the unfair allocation case, we stress the importance of pre-trade documentation, and we recommend TradeSentryTM, our trading surveillance platform. And, finally, we regularly see the benefits of third-party compliance consultants; we are another set of eyes to review and test, and we can give you additional industry perspective to stay in line with your peers and the SEC’s expectations.
Post written by Eugenie Warner