Chances are you answered, “reasonably sure” and perhaps even, “for the most part”.
And, if so, you wouldn’t be alone.
The plain fact is that for many working in regulatory compliance, there’s barely a chance to stay on top of the need to file the next disclosure, never mind taking time to review the process, even if consequences could be dire.
However, in spite of increasing regulatory change (specifically for short-selling regulation) and an already stretched workload, many Compliance Associates and Managers who have inherited the responsibility and systems for managing regulatory reporting remain curious about whether the controls they operate are actually doing the right things and if known deficiencies could be better handled.
And they are right to harbour suspicion.
When FundApps engages with clients for our Shareholding Disclosure service, it is natural for Compliance Associates to compare their existing controls to the regulatory rules we have developed over the last decade with feedback from an expert client base totalling ~$11 trillion assets under monitoring.
On average, over half of firms identify gaps in their existing regulatory checks, which if left unattended could potentially lead to fines. And, with no abatement in regulatory scrutiny and indeed the frequency and size of fines for hedge funds and asset managers alike, those who inherit the responsibility for a critical compliance function have cause to be concerned.
An overwhelmed set of manual processes staffed by a junior Compliance Associate who isn’t meant to be overseeing things full-time is not a good risk mitigation strategy or a valid excuse to be put forward to any displeased national regulator.
The Three Most Common Short Selling Pitfalls
Given the possibility of missing controls and to illustrate how easy it is to miss something important, here are three of the most common difficulties we see where things fall short in a typical manager’s process.
- Complex Securities - Tracking which securities are deemed in scope for short selling regulation is tough, especially when it requires careful calculation of the correct exposure to issuers via complex derivative holdings. Without good experience, this is often something that can lead to problems.
- Netting & Aggregation - Understanding how netting and aggregation works under short selling regulation can be a challenge. Compliance managers should take care when they need to identify the correct level of corporate structure to net long-and-short equity exposure for the same issuer. Following-on, choosing the right level within a corporate structure where a manager is required to aggregate and disclose can pose challenges.
- Data Challenges - Getting the rules in place is often only half the battle. Understanding which issuers are disclosable under the short selling regulation and understanding how to correctly identify these issuers with the data that is available to the market is not an easy task and we often see shortcomings in this area.
How Reporting Managers Can Use A Shortcut To Put Things Right
Many readers will already accept that in circumstances such as those described above, ignorance is not bliss. But, without an easy way to gather evidence of deficiency apart from a lengthy project to review legal memos and internal rules from scratch, notwithstanding paying thousands in legal counsel fees and considering how to manage data differently, their headache will continue.
Compliance professionals need an efficient means of comparing their processes, controls and regulatory insight against an expert source of information in an intuitive way to evaluate regulatory interpretation and better understand the nuances and common pitfalls, which other’s have learned from experience to avoid.
A means to gain reassurance that things are being done right is desirable. A means of finding out what can be done when they are not, before regulators come knocking, is absolutely vital.
That is why we have created a series of educational content, which makes it easy for compliance professionals to brush-up on the fundamentals of regulatory interpretation whilst providing an insight into the ruleset that we have distilled together with our client base.
Unlike legal information, which many already have access to and which our core interpretation is built upon, our regulatory understanding captures hard-won feedback forged from the real-world experiences of nearly one hundred of the world’s largest asset managers, hedge funds, sovereign wealth funds and sell-side institutions.
Given our unrivalled experience and leading position in the industry as experts in helping the world’s largest asset managers to manage Shareholding Disclosure, we would like to invite you to participate in the first of our online Academy events: a free Webinar, “How to Manage Short-Selling Regulation Correctly”.
Designed to help compliance professionals evaluate their knowledge and existing process, we will help those responsible for regulatory reporting fully understand the regulation so they can better evaluate whether they are doing it correctly.
Download our How to Manage Short-Selling Regulation Correctly webinar here.