Strategic Steps to Prepare for SEC Modernization
As the industry is aggressively working towards meeting the new reporting rules, amendments and requirements under the Investment Company Reporting Modernization (“SEC Modernization“) guidelines, firms are taking strategic steps in preparing for the compliance deadline of June 1st, 2018 for implementation of Forms N-PORT and N-CEN for funds with assets under management of greater or equal to $1 billion:
- Data Due Diligence: It all starts with data and the due diligence needed to develop comprehensive mapping and traceability. This includes a complete data inventory and sourcing to identify the impacts and gaps. Data management and governance has been a growing trend in the industry, but in this case, it’s a necessity to successfully meeting the requirements for Forms N-PORT and N-CEN.
- Operating Model Development: The operations and technology impacts will need to be understood and developed into a streamlined operating model. This is the opportunity to reduce the reliance on manually intensive tools such as Excel. The timing and frequency of these filing will require an exception based workflow and oversight. The estimated impact on labor is expected to be 40-50% of the existing teams that support financial reporting. This alone stresses the need for a strong integrated operations and technology model.
- Testing: Thorough testing of the solution will be required to ensure seamless data communication and exception based oversight. Given the filings require lookbacks, it’s important that testing is underway and completed in Q1 of 2018.
- Implementation/Execution: This effort cannot be a long drawn out implementation, it needs to be done right. Resources will need to be trained and fully deployed. Technology will need to be developed and integrated. Workflows and procedures need to be documented and in action. Service levels needs to be clearly defined and measured.
Data is the Foundation
The foundation of successfully meeting the filing requirements is locking down and developing the end to end data workflows. This includes defining the elements needed for each fund portfolio, determining the source location and messaging, and integrating technology that supports the operating model.
There are also many discussions in the industry as to how to solve for Form N-PORT and N-CEN including in-house deployment, leveraging technology vendors, outsourcing to a third-party administrator, and/or a combination of solutions. The common denominator with all of them is that the data needs to be defined and mapped for each fund portfolio regardless of the solution.
We have done extensive research into the rules and believe the data set for N-PORT and N-CEN is north of 1,000 data elements to support both forms. This includes fund data, performance and risk calculations, and security reference information. In most cases, if not all, this data resides in various systems throughout the investment architecture. There are also many instances where this data doesn’t reside anywhere today and needs to be extracted to meet the filing requirements. While many of the technology and provider solutions adequately meet the automation, and filing requirements, the aggregation, ownership, maintenance, and normalization of the data is still needed to make the implementation successful.