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Thomas Pfister, Confluence

Confluence seeks to automate regulatory reporting complexity

Confluence, one of the investment management industry's leading reporting, data management and analytics companies, delivers technology as a solution to enhance the operational efficiency of its clients. The platform supports a vast array of clients globally running mutual funds, ETFs, alternative investments, institutional portfolios and UCITS funds, as well as eight of the 10 largest global fund administrators. 

With regulation becoming such a burden on investment managers, technology has needed to up its game and deliver automation where possible. In that regard, Confluence is well placed. Its Unity NXT Regulatory Reporting platform handles clients' post-trade reporting requirements in a single environment and allowing them to remove much of the regulatory complexity. 

Crucially, the Unity NXT platform is ready to start supporting clients' data integration and reporting needs under the SEC's latest regulatory introductions, Form N-PORT and Form N-CEN.

"Form N-PORT and the liquidity rule under SEC Rule 22e-4 have added a ton of pressure to the US registered investment management community," says Thomas Pfister (pictured), Global Head of Regulatory Reporting Solutions. "They've never had to do this level of reporting, to this scale, on this frequency, before. Firms will need to provide new data points that weren't included in any of their previous business reporting processes and source those data points. As a result, they need new infrastructure, new teams, new expertise and new technology that previously wasn't designed to handle or facilitate thousands of different disclosures every single month."

This places a lot of pressure on investment firms, who are pushing through the demand for innovation onto their technology partners. Pfister estimates that if firms spent an hour or two reviewing each of the disclosures under Form N-PORT "it would cost the industry in the region of USD25 million per year". 

Most investment firms cannot justify that cost. As such, Confluence and others have to be able to provide the technology that empowers their clients to do this activity as quickly and efficiently as possible. 

In simple terms, Form N-PORT is a portfolio reporting form that impacts all US '40 Act mutual funds and ETFs. Each US registered fund will need to provide portfolio-wide and position-level holdings and file within 30 days, every month, to the SEC.

The form will require data on the funds investments, including:

  • Data related to the pricing of portfolio securities;
  •  Information regarding repurchase agreements, securities lending activities, and counterparty exposures;
  • Terms of derivatives contracts.

"The report has a number of different data points on positional risk information, portfolio risk information, some ledger-based accounting information and static information, which the SEC wants in order to facilitate its systemic risk monitoring activities. 

"The final rule was introduced last October. At that time, the initial challenges were: Where am I going to source this extra external data from? What are the data gaps? What technology will I need to use to do this? 

"Today, the biggest challenge, and one that people still haven't yet addressed, is: How is this actually going to work? How are teams going to function? How are they going to interact with external and internal reviewers? If you're using a third-party service provider, how will that provider interact with the investment manager to ensure the filing is done accurately and on time? And what will the oversight model look like in that arrangement?" explains Pfister. 

These questions all relate to the central crux of the issue: namely data management. How are investment managers going to report on thousands of funds in an efficient way, every month, without having to hire an army of people? 

"We have the infrastructure in place. Firms don't want to have to hire 50 new accountants. They want to depend on technology to push their process automation capabilities, which in the future likely includes a rise in robotic process automation (RPA). 

"We see clear benefits to machine learning and RPA. Both are in alignment with our long-term technology strategy. We are delivering the initial piece of this right now: large-scale, cloud-based data management for our clients. 

"That allows us to learn user activities, to learn process routines and other redundant activities. It's really a shift away from on-premise, piecemeal solutions, to a more comprehensive platform-based solution that delivers bigger predictive data sets. That is the direction we are heading in," outlines Pfister.

Platform technology has become, in many ways, the saviour to investment management firms. The volume and complexity that firms have to handle on a daily basis today has grown exponentially over the last five years. Firms cannot be expected to bear the burden of that data management challenge internally from a technology perspective. Which is why technology groups like Confluence, who have the scale and infrastructure to future proof against further regulation in years to come, have become key partners. 

Pfister confirmed that Confluence has just released a solution that will centre around task-based automation, initially targeted at the production of recurring financial statements. The aim, he says, is for the system to begin to take over a lot of the manual tasks our clients have to do in relation reporting and monitoring. In conjunction with RPA, we think this will be the future. That's where you will start to see real gains (and a reduction in repetitive manual tasks). 

Not only is the sheer volume of data to be reported on expanding at a rate of knots, the time in which firms have to respond is getting shorter and shorter. And in Pfister's view, the timeframes are only going to get tighter. 

"I see no reason why the opposite would be true," he says. "We are trying to help clients get to the point where they can do an efficient exception-based review, as quickly as possible, so that they're not doing spreadsheet gymnastics as might have been the case in the past. We are helping them to automate as many tasks as possible.

"We are already making inroads on this with our regulatory reporting solution, which will support Form N-PORT. It's a long journey though, and we're only just in the early stages but it's an exciting time. 

"Our offerings include a whole host of shareholder communications-based solutions that deliver the right data to the client (and their clients) within the right timeframe. The automation in our platform builds efficiencies to help clients lower their IT footprint and focus more on what they do well, which is maximising value to their investors."

Pfister concludes by observing that technologies like blockchain are still in the early stages but are showing some encouraging results, as is the case for robotics and machine learning: "Some of our clients are using this technology in their front office. It hasn't trickled down into the middle and back office yet but we fully expect it to over the coming years and we plan to be there, right at the forefront of those developments." 

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