In October of 2016, the SEC finalized rules for SEC Reporting Modernization with the first transformational impact to the asset management industry around financial reporting impacting registered investment companies (40 Act Funds) to occur on June 1, 2018 for funds with AUM greater than or equal to $1 billion with the compliance date for Form N-PORT and Form N-CEN which will ultimately replace forms N-Q and N-SAR, respectively.
SEC Reporting Modernization is for the most part an exercise in data aggregation, validation and reporting from multiple sources to be delivered to the SEC monthly in an XML tagged format and made public to investors for the first and third quarter end, 60 days after the reporting period. This strategic initiative to the industry and companies will require frequent reporting in a compressed timeline and impact most functional teams across the organization requiring a well-coordinated effort and E2E automation.
Up until now, a lot of effort has been put forward by some vendors, service providers and some of the larger fund complexes in the asset management industry to address the challenges posed by this strategic initiative around data collection and processing requirements, automation to support complex calculations, decisions to build vs buy a vendor solution or outsource to a third-party administrator or perform filings in-house just to name a few.
There is still much more to do in order to be ready for the June 1, 2018 compliance date and a number of firms have not even begun to touch the surface. With over 600 data elements for N-PORT alone and multiple source systems, implementing a target operating model and testing by the beginning of 2018, funds and service providers need to start their planning NOW for SEC Reporting Modernization if they have not done so already.
Up until now, there are only a few firms that have put a lot of attention to these requirements. In a recent industry conference that we participated on the panel, we heard that one provider has spent over a year with 30+ resources dedicated to this effort to date. Unfortunately, this is not the same as what we’re seeing across the industry. With the estimated resource needed to be 40-50% incremental to the teams that support financial reporting, the time is ticking and firms need to prepare now.
The primary areas of focus to prepare for these filings are data sourcing and aggregation, technology integration, and operating model. There are a handful of solutions in the market that collectively will assist in the sourcing of the data, but each firm will need to perform a detailed data traceability to ensure adequate coverage across their funds. STP will be critical to this effort as the filing frequency is monthly with look back requirements. Integration of technology will be needed to minimize manual intervention and allow for an analytic oversight role of the data. The operating model is key to making this all work. Firm are considering service provider solutions, vendor technology, in-house undertaking, or a combination of all three. Defining the process and locking down responsibilities is yet another critical component to solving this equation.