Growing a fund is complicated. Compliance, unfortunately, grows with the fund, and not always in ways that are obvious until you are already behind. Most of the gaps we see are not the result of carelessness, but instead the result of having the wrong tools for the job. Shareholding disclosure obligations span more than 100 jurisdictions.
Rules change. Thresholds differ by market, by instrument, by the structure of how you hold a position. There is simply more to track than any team can reasonably be expected to manage in a spreadsheet because the task is too large.
Sanctions buried inside ETFs and indices
Most funds screen direct holdings for sanctions exposure. Far fewer screen the underlying constituents of the ETFs and index products they hold. The perceived risk is nominal and the effort is substantial, but sanctioned issuers appear in widely held products more often than most teams expect.
The iShares MSCI China ETF held China Mobile as a constituent when it was placed on the US sanctions list over alleged ties to the Chinese military-industrial complex. The fund's manager had to rapidly liquidate a multi-billion dollar position, causing significant selling pressure on the name.
The iShares MSCI Global Metals and Mining Producers ETF still holds MMC Norilsk Nickel, a sanctioned entity that cannot be legally divested under OFAC rules. It remains on the fund's books as an isolated line, excluded from the NAV calculation but still sitting in the portfolio.
These are mainstream products. A fund with a thorough direct holdings process can still carry meaningful indirect exposure simply because the full picture is difficult to see without automated look-throughs.
Dual-listed securities triggering obligations in markets you aren’t watching
A security listed in the US can carry disclosure obligations in Europe. A holding that sits comfortably under a domestic threshold may breach a foreign one. The complexity compounds when you are trading across multiple jurisdictions and mapping requirements by hand.
Take HSBC. Its ordinary shares trade in London and Hong Kong, with a depositary receipt on the New York Stock Exchange. A holder could have disclosure obligations in three jurisdictions simultaneously, regardless of where the trade was executed. Or Konami, a Japanese company also listed on the London Stock Exchange, where a position acquired as part of a Japan-focused strategy could trigger UK disclosure requirements the team was never watching for.
These are not obscure examples. Dual-listed issuers are everywhere, and the information required to flag them correctly is not always in front of you. Without actively watching for both listings and knowing where obligations might arise, filings get missed. The responsibility sits with the compliance team either way.
Regulatory changes you did not know had happened
These are the kinds of changes that stack up. On 6 July 2026, the UK's position limits regime changed significantly, replacing the broad MiFID II framework with a narrower, exchange-led model covering 14 critical commodity contracts and their related instruments. One week later, on 13 July, the UK's short-selling regime will be replaced entirely, moving away from the EU-inherited framework that has been in place since 2012 and introducing a new FCA Sourcebook with changes to reporting deadlines, position disclosure, and market maker exemptions.
Two major UK regulatory changes in the space of seven days, each affecting different parts of a fund's exposure, each requiring its own operational response. For a team already working hard to stay on top of every market they cover, it becomes a lot to absorb at once.
Exposure doesn't announce itself
The common thread here is not negligence. These are the things that fall through the gaps when a team is growing faster than its tools. Most funds at this stage are managed with a combination of manual processes, outside counsel, and good intentions, and for a while that works. The risk is that it works right up until it does not, and by then the filing deadline has passed or the position has already been held.
The question is not whether the exposure exists. It is whether you can see it before it becomes a problem.
