Regulation

SEC report details use of Form PF data

The SEC’s second annual staff report on the use of data collected from private fund systemic risk summarises how the data received from Form PF filers is used to protect investors and the integrity of the markets.

According to ConceptOne, the report is a clear mandate for the development, implementation and maintenance of a Regulatory Enterprise Risk Management (RegERM) system for the alignment of third-party disclosures. 
 
The report highlights four areas of focus:  
 
1.            Examinations and investigations of private fund advisers
2.            Risk monitoring activities
3.            Providing additional guidance to filers
4.            Working with other federal regulators and international organisations regarding issues relating to private fund advisers.
 
ConceptOne has stressed for several years that regulatory reporting at its core is a RegERM exercise in data alignment. The report makes clear that the SEC has incorporated the review and analysis of PF data as an integral part of its examination and enforcement programmes.
 
As part of its routine examination programme as well as in connection with enforcement investigations, the SEC reviews PF submitted data for inconsistencies with other information obtained during an examination, such as due diligence reports, pitch books, offering documents, operating agreements and books and records. It is also looking for discrepancies between Form PF filings and any publicly-available documents related to the adviser, including its Form ADV and brochure. 
 
The SEC specifically details its sharing of data with other regulators (domestic and foreign) and to the International Organisation of Securities Commissions to facilitate "a more complete overview of the global hedge fund market". Recent comments by senior FCA and ESMA representatives confirm that they similarly intend to closely scrutinize Annex IV filings for their regulatory purposes. 
 
The global regulators are taking seriously Dodd-Frank and AIFMD's mandate for oversight of systemic risk. They also intend to take advantage of this new transparency into the alternative investment industry to enhance their regulation of managers and their internal infrastructure. As a result, effective data management has become a prerequisite to compliance. Failure to implement a RegERM system to align the firm's data and its third-party disclosures may lead to unnecessary and unwanted costly regulatory scrutiny. Managers need to avoid providing regulators with a "softball" or "own goal" through disparate reporting.


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