The benefits of knowledge sharing & promoting a diversity of thought when working to solve problems have been demonstrated repeatedly.
The scientific method itself points to the fact that knowledge grows best when discussion and deliberation are valued. It’s important to minimise cognitive bias, especially when language must be interpreted to achieve quantitative output. As past financial crises have shown, minimising this bias is even more important when dealing with regulatory obligations applied to complex financial instruments.
To their credit, organisations like the Investment Association (UK) and the Alternative Investment Management Association (AIMA) have fostered crucial discussion in aspects of compliance among the sectors they represent. There is no reason, however, to believe that the benefits of peer discussion and insights from practice cannot also be found within the technology that automates regulatory obligations.
Among other benefits, the use of cloud technology and software as a service (SaaS) allow users to stay within a domain - such as the monitoring of aggregated financial assets across the globe — without having to leave the software environment. Given strong security features available within the cloud, users can share regulatory or practical insights among industry peers at the click of a button. These insights can range from more practical matters like the correct procedure to fill out reporting templates, to questioning and providing views on how a particular regulation might be interpreted in context.
For example, in the world of global shareholding disclosure and transparency obligations, there are rules in each market requiring one to assess, aggregate and accurately disclose specific holding percentages in financial securities for accounts, portfolios, or entities that hold ‘relevant interests’ in a company. Although local or in-house counsel could provide a country-by-country analysis of which corporate entities may be considered holders of relevant interests, it is almost certain that ambiguity will remain. Where noncompliance might lead to substantial fines and reputational damage, having a forum for discussion about the practical aspects of a given rule is invaluable.
Just a few of the questions that might arise for both legal professionals and compliance staff for each jurisdiction are as follows:
1. Which financial instruments (from common stock to multilevel embedded derivatives) must be aggregated to know if holdings have reached disclosable thresholds?
2. At which entities or subsidiary entities in a corporate tree (or at the fund/portfolio level) should financial assets be aggregated?
3. What relationship must the various entities in an organisation have in relation to the assets they hold? Must they hold discretionary management power, legal title, voting rights, or has the law not specified in any detail?
4. Are multiple disclosure calculations required where a legal personality exists at a portfolio level (e.g. at the Undertakings for Collective Investments in Transferable Securities (UCITS), trust, partnership, segregated mandate or other level?)
At the other end of the spectrum, more administrative questions might arise, such as:
1. Once a disclosure threshold is hit, how must it be disclosed? By e-mail, web portal, mail or via local counsel?
2. How must disclosure forms and templates be populated for various financial instruments, and can this task be automated? (Examples of peculiarities arise in more complicated forms like 13F or 13G in the United States, or joint-holders disclosures in Japan).
3. Who are the required recipients of disclosure reports, and what is the deadline for delivery?
These are only the start of a raft of considerations compliance officers from financial services institutions of almost every size will encounter. Then, multiply those concerns by the number of jurisdictions where one’s securities are listed or incorporated. While no single lawyer or compliance officer can provide all of the answers, a community of compliance users leads to higher accuracy and a lower chance of unmet regulatory obligations.
Here at FundApps, our automated Shareholding Disclosure service has been built off of the guidance of the world's largest compliance community. With features such as the Global Company Database (GCD), our clients can work together to collate a golden source of community powered data with continuous live updates. Does this sound like something you would like to be part of? Then get in touch!
This blog is the second in a series of articles focused on compliance as a service (CaaS). You can read the first part, 'The Challenges of Data Sourcing' here. In part 3 we discuss how the gap between practice and interpretive decision-making can be closed.