An Easy Solution to Reduce Burden of Annex IV Reporting
On the heels of the 2008 global financial crisis, the EU implemented the Alternative Investment Fund Managers Directive (AIFMD) in 2013 to enhance transparency and safeguard investors. This legislation had a significant impact on the reporting and compliance workload of fund managers across the EU.
At the heart of this mandate was Annex IV reporting. Alternative investment fund managers (AIFMs) were required to report relevant information such as main instruments traded, investment strategies, and geographical investments to local regulators for each country they market in.
As AIFMD was introduced quite a few years ago, it would seem that reporting processes have been defined, and requirements are easily met. However, when implementing, fund managers continue to find Annex IV reporting challenges.
Here is why:
The Annex IV reporting template carries 246 explanatory questions with 340 data fields (38 fields dedicated to AIFM and 302 fields dedicated to AIF). An extensive amount of information is required in this, including trade instruments, AuM, and liquidity, borrowings, exposures, stress test results, and leverage.
Volume of Work
AIFMDs have unique data management systems that often combine custom and third-party systems that hold multiple sub-sets of data (e.g., investors’ data about position, data on trade, and risks). Simply trying to source all the necessary data from multiple disparate sources and combining, refining, and auditing the data into a single aggregated format is very time and labor-intensive.
Hard-pressed for Time
All these complex tasks have to be collated a mere 30 days after the reporting period. Penalty for late submissions and missed deadlines can drum up a hefty outflow.
Syntax and logical checks must be performed. Fund managers must have a detailed audit trail to explain data origin, transformation, modifications, and accountability.
- The European Securities and Markets Authority (ESMA) changes Directives from time to time. The EU’s implementation of the Sustainable Financial Disclosure Regulation (SFDR) in March 2021 is an example. When new legislation and requirements are introduced, fund managers must be compliant.
It is essential to recognise that regulatory reporting, coupled with other investors’ financial business intelligence, leaves AIFMs overwhelmed.
Since compliance with reporting requirements is not optional, these challenges must be overcome effectively and compliant. To overcome these challenges, all you need is an Automated Solution to keep up with the regulatory changes across jurisdictions and undertake other key reporting aspects.
An automated solution like ours at DataTracks, can:
- Accurately assess a fund’s needs and help determine the extent of your data requirement, thus giving you a streamlined system to manage the complexity of your reporting obligation.
- An automated AIFMD solution can ease the compliance burden and consequently the workload of AIFMs while ensuring that all aspects of the AIFMD reporting regime are met. Increase business intelligence and analysis time, enhance resource management, and meet regulatory filing deadlines by reducing manual processes.
- Data collection from multiple disparate sources is further delayed by the new way of working following the COVID -19 pandemic. An on-cloud reporting solution can facilitate collaborative working, thereby helping stay on track with time and deadlines.
- Validation is an essential function to prepare and submit an accurate report. An automated software provides an integrated process of validating all the criteria and generating a report to resolve errors. The resolution process will save significant time and effort, allowing for submitting an error-free report to the regulator.
DataTracks Cloud-based AIFMD Solution enables the Fund Managers to Comply with evolving ESMA and NFA requirements.
Perform Automated Calculation of 90+ Data points including,
- Total AUM
- Total Net Asset Value (NAV)
- Principal instruments and markets calculation
- Principal exposures and concentration calculation
- Geographical breakdown of investments
At DataTracks, we make it our business to understand the new and highly complex AIFMD operational framework, and we strive to provide cost-effective reporting solutions for you.