By Paul Soltis, Market Manager for North America at Confluence

The past six years have seen securities and market regulators change their focus to systemic risk, a shift that has led to a fundamental change in what filings require, how often filings are required, and the amount of time you have to make those filings.  Fund administrators first felt the impact on a small scale with Form N-MFP and Form CPO-PQR, but they will feel it full force with the introduction of Form N-PORT, a part of the SEC’s Investment Company Reporting Modernization proposal.

Confluence recently polled 97 asset management professionals in order to determine their top operational concerns with the SEC’s proposal. According to the survey results, fund servicing firms are primarily concerned with:

• Sourcing and collecting data in a timely manner to comply with the rule
• Aggregating data from multiple new sources and reconciling it for multiple filings
• The costs associated with complying with the new reporting requirement
• The reduced reporting window (from 60 days to 30 days)

Sourcing and collecting data in a timely manner to comply with the rule

26 percent of those polled said identifying sources for the required data was the primary concern, while 56 percent said collecting it would be the biggest challenge.  Three out of five respondents (59 percent) said they are unprepared to provide the risk metrics required by Form N-PORT, and the majority of that group also said their firm doesn’t yet have a plan in place.

The new data required by Form N-PORT is much harder to source and use than the data that fund admin teams are used to. There are many new source files to merge and aggregate into a combined, single filing, and those new sources, especially on the collateral and derivative side, tend to be of a lower quality than the (relatively) clean records used for financial reporting today.

Aggregating data from multiple new sources and reconciling it for multiple filings

Once the data has been collected, 47 percent said aggregating it would be the biggest data management challenge, while 33 percent said reconciling it between its multiple uses was their top concern.

The typical financial statement requires six to eight different data files.  The typical systemic risk filing requires 20 to 30 different data files.  And those 20 to 30 different data files overlap with the ones used for financial reporting and possibly some other filings that the fund admin knows nothing about, so making sure it is all consistent will be a challenge.  Add in the need to trace back to all those sources of data to provide the provenance of your answers to the SEC and that challenge becomes even more daunting.

The costs associated with complying with the new reporting requirement

32 percent of respondents felt they would need at least double the resources required for financial reporting.  71 percent said that the electronic delivery of financial statements included in the proposal was critical to offset the compliance costs of Form N-PORT.

The reduced reporting window (from 60 days to 30 days)

An overwhelming majority of survey respondents (93 percent) said they are concerned with meeting the proposed 30-day Form N-PORT reporting deadline.  Fund administration teams have 60 days to complete a set of financial statements or Form N-Q.  They will have half that time to complete a filing that, while not certified, will still require a lot more time and effort.

The survey findings did not come as a surprise.  Rather, they confirm the strategy we have adopted post crisis and that guides our data management, analysis, and reporting solutions. As we build our N-PORT solution, that strategy and these results will inform our development and ensure our focus stays on what is critical to the market.