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The Hidden Costs of Compliance

3 mins
Posted on Sep 13 2019 by Liam Driscoll

Trading in global markets brings diversification, opportunities for alpha, but also greater compliance costs. This is where our Shareholding Disclosure service can help.

Now more than ever it is easier to trade securities across the world. Trading in global markets brings diversification, opportunities for alpha, but also greater compliance costs.


Every country brings with it a unique set of rules and regulations for participants in securities markets. The MSCI world index consists of securities across 23 countries, which translates into more than 150 individual rule calculations used in the FundApps Platform

Investment Managers are expected to be experts in regulatory disclosure across the globe and the nature of shareholding disclosure reporting obligations means that one cannot easily determine up-front where a disclosure will need to be made. Most often, obligations stem from where a security is listed (including multiple listings). Monitoring must be done globally, not only where one has a rough heuristic (e.g. using country of incorporation) of jurisdictions that are subject to regulatory obligations. This means paying substantial local counsel fees in numerous jurisdictions for advice on a transactional basis is both unnecessary and very costly. Assuming local counsel is used (instead of a holistic monitoring system), a laundry list of specific questions will need to be answered, only adding to the hourly legal fees. Multiply this by the number of countries one may have economic exposure to and the bills stack up!

100 dollar notes

Hidden costs of compliance: bad optics makes for creative enforcement. 

Here at FundApps we want you to get it right 100% of the time. Whether you file ten or ten thousand position disclosures a year, all it takes is one inaccurate or late disclosure to get on the radar of a regulator or the plaintiffs bar. Market transparency is one of the primary rationales for shareholding disclosure rules, a number of position disclosure filings are made public and violations of disclosure obligations can be made public by the governing body or required to be disclosed in a regulatory filing. 

For example, US Form ADV Part II requires registered investment advisors to disclose all material disciplinary actions for the last ten years. Item 9 violations are an easy target for due diligence questionnaires and investor inquiries. Every time a potential client asks you to fill out a due diligence questionnaire or future employee researches your firm you may have to explain any regulatory violations.

Regulators are not impressed with the 99% of filings you submitted correctly but the 1% you filed incorrectly. These implicit costs are hard to value but will have an impact on the bottom line. 

Stick to what you do best: using FundApps as a warning system. 

Knowing when you have a shareholding disclosure obligation may not be enough as there are a number of jurisdictions that require pre-registration before being able to submit a position disclosure.

danger warning sign

The act of registering itself can require the expertise of local counsel and can take time to complete. Hiring legal counsel or a local expert to register for submission, prepare a filing, and disclose on your behalf may not be worth the expense and effort if you could get the same economic exposure from another issuer. Paying a law firm to register for a position disclosure portal in a foreign jurisdiction because you inadvertently crossed a reporting threshold can eat into your bottom line quickly.

We enable our clients to monitor for potential position disclosures before crossing thresholds with Room-In-A-Name. Features like this give our clients the ability to prepare for potential filings and decide if they want to cross a threshold or not. 

Working together to get it right: building a compliance community.

Compliance is not a competitive advantage. FundApps was founded on the premise that individual firms building silos doesn't make sense from a cost or value perspective. In today's economy it is clear that network effects can reduce costs. Instead of each firm paying lawyers and consultants to do the same work, we want to harness the power of community and cloud computing to increase operational efficiency and decrease costs.