Johannes Waldheim, Leiter IT & Solutions from acarda
It is as yet unclear whether the European Market Supervisory Authority (ESMA) will realize its intended adjustments to the financial market directive MiFid II/MiFIR for this year despite the Corona pandemic. However, an adjustment to the PRIIPs regulation for packaged retail and insurance-based investment products seems certain. In the long term, no slowdown in regulatory dynamics for asset managers is to be expected.
In the era of Covid-19, Those who have fulfilled their reporting and information obligations until now with an in-house solution based on MS Excel, for example, are usually unable to guarantee secure remote access to a central regulatory database. This makes working from home, which is currently strongly recommended in order to protect against infection, almost impossible.
The situation looks quite different when all regulatory applications for reporting are obtained from the cloud as a web-based Software as a Service (SaaS). Here, location-independent access via encrypted channels is part of the basic concept. The resulting flexibility in work organisation pays off both in times of crisis and beyond. In addition, a consolidated database means that different reporting tools for different regulatory requirements can be combined in the cloud. The expense of double and multiple entries, which almost inevitably go hand in hand with distributed data storage, is eliminated; this leads to higher data quality. Last but not least, the central cloud model relieves the burden of constantly adapting reporting software to changing compliance requirements, as this task is done externally in the background in the SaaS model. The heterogeneous methodology used to calculate costs illustrates how large the expenditure saved can be. To calculate transaction costs, for example, detailed cost data for MiFid II and PRIIPs must be made available.
Although standardised templates like EMT and EPT are available as exchange formats for both MiFid and PRIIPs, large differences in the configuration and calculation of these templates can be observed across Europe. Currently, a range of regulations according to UCITS, PRIIPS or MiFid II are still applicable which can lead to both favourable and unfavourable results with regard to costs. So, for example, implicit transaction costs could either be determined using the new PRIIPs basis point estimation method or using the arrival price/full PRIIPs method. No less complex are the calculation methods in the context of the Cost Transparency Initiative (CTI) and the DC Workplace Pension Templates (DCPT).
In general, such subtleties in regulatory reporting require specific know-how that is always kept up to date; something which probably only very few asset managers possess — especially since, depending on fund composition, in addition to PRIIPs and MiFid II/MiFIR they may also have to meet the no-less-demanding Solvency II or CRR requirements.
In this context, the cloud model not only saves the expense of software adaptation and know-how acquisition, but its standardisation also improves the internal workflow for the collection and aggregation of all reportable information.
However, be aware: even an external cloud can only reduce complexity if regulatory services can be differentiated granularly and different reports can be put together flexibly. This requires a smart combination of microservice and data lake approaches that enable a fast response across multiple data sources; for example, an additional Solvency II module is required when insurance companies themselves also invest in funds. Flexible service selection provides access not only to a mechanism for calculating transaction costs, but also to an SCR calculation module based on the same data stock, i.e. without any increase in complexity. A centrally unified database of reusable regulatory information can be accessed at any time via the cloud, making the “data graves” of distributed in-house systems a thing of the past. The SaaS model strengthens compliance capability in asset management not only in times of crisis, therefore, but in every season.