Chief Compliance Officers (CCOs) certainly had a lot on their plates in 2018 – from MiFID II and GDPR to considerations around the DOL Fiduciary Rule and Liquidity Rule, there have been many pieces of regulation that have captured their attention and pushed them to implement new operational and technological structures to comply. I had the opportunity to share some of my thoughts from Delta Data’s perspective with Ignites for a recent article. The following is a summary of some of those thoughts, which centered on the importance of transparency data in intermediary distribution of Mutual Funds.
Evolution of Intermediary Transparency
Several years ago, the industry coalesced around BNY’s DSA/DSP format and built a file transfer utility, Omniserve, in conjunction with the DTCC for the efficient and timely delivery of Broker-Dealer transparency data. The beginning of 2019 will take this to another level as the industry sees additional requests for transparency data on non-Broker Dealer platforms that hold sub-omnibus data.
At Delta Data, we are receiving more requests to help format and deliver Trust and Record-Keeping transparency data to various stakeholders, including Fund Sponsors, and most of the early emphasis we have seen is centered on ERISA eligible accounts that carry added regulatory oversight. Additional common areas focusing on transparency data are around plan-level trading in specific assets to tie out agreements and eligibility, as well as multiple stakeholders showing interest in sub-account level trust accounts that house the CITs.
We also see Fund sponsors asking for our help in digging deeper into the Broker-Dealer transparency data they have already collected. Their evolving analysis is increasingly focused on large trades, the applicability of certain accounts to prospectus rules, and eligibility. The evolution of how products are sold is starting to get into which share classes are sold in each channel on their intermediary’s platform. Properly determining if account minimums are met, foreign accounts are identified, and large transactions are given proper notification is the new baseline of capability.
The Value of the Data in the FICCA
In 2008, the ICI worked with firms to develop a Financial Intermediary Control and Compliance Assessments (FICCA) framework to ensure operational compliance with prospectuses and allow fund companies to oversee broker-dealers’ tasks, such as distribution and sub-TA work. FICCA has evolved over the years as it became more widely adopted, and in 2018, 15 intermediaries provided FICCA documents to fund sponsors.
In early 2018, where to find, how to analyze, and how to report on the information provided in the FICCA was the focus of oversight platforms. These intermediaries have been accumulating a lot of data through the FICCA that fall under multiple areas of focus where fund sponsors may seek assurance. These include document retention and recordkeeping, transaction processing, shareholder communications, privacy protection, and anti-money laundering, to name a few. They now have several years’ worth of versions and are beginning to analyze the evolutions of the controls, or lack thereof in some cases, of their Intermediary’s operations.
From a compliance perspective, with greater data comes greater responsibility. The general expectation we see from the regulatory bodies is that if information is being made available, it will be included in the oversight program. This keeps CCOs on their toes, not just in terms of what they don’t know due to lack of transparency, but what should they know given the transparency that has been provided. Better insight into the data combined with analytics that illustrates the business process supported help CCOs and their relationship managers efficiently articulate the areas of concern with each intermediary.
The more advanced notice that intermediaries can give about a large upcoming redemption the better; it allows fund managers to plan and liquidate/buy whatever holdings they might need in an orderly manner and in the most tax-efficient way possible. This coupled with less non-invested cash results in significant fund performance advantages over non-planned liquidations.
Transparency data analytics is an issue we look forward to working on with our clients in 2019 and beyond to help them stay ahead of changes and run their businesses more efficiently. If you happened to miss the piece in Ignites, I strongly encourage you to give it a read. It includes insights from a number of other industry leaders on other pressing issues for CCOs in the coming year, like the monitoring of automated back-office processes and greater scrutiny of internal communications and employee behavior.
Contact us for more information on how we help clients work through their data management initiatives.
Whitfield Athey is CEO of Delta Data Software. His role at Delta Data is focused on growth of the product base, satisfaction of clients and scalability of the organization.