Evaluate Your Options for SEC Modernization

One of the primary initiatives in meeting the requirements for SEC Modernization is evaluating the alternative solutions in the marketplace.  There are many vendors and service providers that are offering technology solutions and managed services to support the data collection, preparation, creation, and filings for forms N-PORT and N-CEN.  The measurement criteria for finding the best solution for SEC Modernization should focus on the primary needs of the business.  In our experience, the leading practices should focus on,  1) the ability to collect ALL required data, 2) automated data and filing validation, 3) achieving STP / technology integration and 4) subject matter expertise to implement the solution, and 5) the capabilities of your service team to deliver now and in the future.

  • Ability to Collect ALL Required Data: We know that a majority of the data will come from custody, fund accounting and administration, performance and risk, but it does not mean that all of the data is easily accessible even if it currently exists for purposes of SEC Modernization.  In addition, many funds use multiple sub-advisers, one or more service providers, and possibly more than one fund accounting and financial reporting technology platform in which the data will need to be normalized and aggregated to support the N-PORT and N-CEN filings.  For N-PORT specifically, once the filing cycle is complete for month one, the process for month two will start soon thereafter.  The solution and operating model needs the ability to capture and track the receipt of data in an efficient way. Dashboards that can track and report the status of data throughout the filing cycle are effective tools to help facilitate the process.
  • Automated Data and Filing Validation: Once the data is collected and aggregated, it is important that both the data and filing elements are validated against a predefined set of rules and tolerances.  The best solutions will have the ability to apply automated tolerance checks that support an exception based environment for the users and/or business owners.  Some of the significant checks should include: validating the completeness of the filing data, changes in calculations such as performance and risk, and filing comparisons from one period to another.  This also includes additional workflow controls to manage data updates, threshold breaks, fund specific control checks, etc.  The frequency of form N-PORT alone will require efficient control checks that allow for quick validations and filing approvals.
  • Achieving STP / Technology Integration: As with any solution, data needs to be communicated between systems.  Messaging capabilities will vary across platforms, businesses, and third parties.  In addition, much of the data may reside within files such as Excel and Word that may be collected via email.  Given the quick turnaround from one filing period to the next, it is imperative that the solution can handle multiple file and messaging formats and can work with the data sources to automate integration.  Data trace-ability and mapping needs to be completed up front and tested to ensure true integration that achieves straight through processing.  Anything short of this will require additional resources to support the inefficiencies.
  • Subject Matter Expertise to Implement the Solution: The solution, whether outsourced or in-house with vendor technology, requires subject matter expertise and deep knowledge of the SEC Modernization and financial reporting requirements to make the implementation successful.  Ability to complete the filings is one thing, but it’s also critical that the required data is fully understood, calculations and derived filing elements are complete and accurate, and an overall understanding of the fund(s) is the baseline for comprehensive and useful validations.  When evaluating solutions, firms need to assess the expertise required versus what’s available to ensure a successful implementation.  Long, drawn out implementations will increase the risk of missing the first set of deadlines for these filings.
  • Capabilities of Your Service Team to Deliver Now and in the Future: While automation and data collection are critical to the filing process, people matter.  Their ability to navigate and manage through SEC Modernization will be key to a solid operating model.  Many of the industry solutions are viewing SEC Modernization as an opportunity to offer a broader regulatory service and/or technology capability.  This will be important and should be a consideration when evaluating solutions.  The near and now may be one set of filings, but the solution needs scale and a vision towards the future.  A dedicated team to drive these filings at varying frequencies will be essential in not only managing the process, but adapting to the many challenges that arise during the filing cycle including missing data, incorrect elements, filing analysis, and possibly inaccurate filings.

As the key dates are approaching, many firms will be looking at the same vendors and service providers, so to stay on track, vendor assessments should be efficient, focused, and driven by experienced resources.   

For more information about SEC Modernization, please contact Janis Shalit at JShalit@AliterIS.com or Keith Totten at KTotten@AliterIS.com.