Round table


SEC Investment Company Reporting Modernization rule implementation

Requirements, impacts, challenges, and opportunities

On October 13, 2016, the Securities and Exchange Commission (SEC) adopted new forms, rules, and amendments to modernize the current reporting and disclosure of certain Registered Investment Companies (RICs). Deloitte has reviewed the new and additional requirements of the final Modernization Rule and offers insight to the impacts, challenges, and opportunities for performance improvement that it presents.

Drivers behind the rule

As the primary regulator of the investment management industry, the SEC continually identifies opportunities to address the industry’s growth and complexity. While the industry has experienced unprecedented growth, the environment in which investment managers operate has also evolved. Secure, easily accessible data sources such as the cloud, firm web portals, and other automated web-based solutions have emerged as primary tools for sharing and analyzing information. Harnessing this available technology can help the SEC consume data from RICs in a more streamlined fashion, leading to enhanced aggregation and dissemination capabilities. The combination of a growing and complex industry and the cutting edge technology designed to support it has led the SEC to adopt a rule which modernizes the current reporting regime by improving the quality of data provided to investors and helping regulators collect and analyze fund data more efficiently.

Key challenges and opportunities

Key challenges and opportunities

In order to satisfy the requirements of the Modernization Rule, fund sponsors and service providers will be encouraged to invest in people, process, and technology to address challenges, such as:

Industry challenges:

  • Data sourcing and aggregation
  • Implementation timeline
  • Compressed filing timeline
  • Complex calculations

Infrastructure challenges:

  • Strategic challenges
  • Operational challenges
  • Technology challenges

Similar to other SEC-driven modernization initiatives, opportunities will be available for firms that move efficiently. The demands placed on RICs to comply with the Modernization Rule will create opportunities to enhance existing reporting infrastructure such as:

  • Centralized database
  • Automated reporting
  • Enhanced oversight
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What should you do now?

Based on our considerable time spent in discussions with fund sponsors and service providers, many organizations are in varying stages of response to the Modernization Rule. Highlighted below are just some of the steps that executives should undertake to achieve compliance:

Initiate planning

  • Assemble a dedicated team of business, operational, compliance, technology, and legal representatives
  • Develop an understanding of the final Modernization Rule
  • Identify the strategic impact of the Modernization Rule on current organizational initiatives

Assess capabilities

  • Analyze the impact of changes to technology, such as regulatory reporting system upgrades, to meet the requirements of the rule and amendments
  • Identify whether current data architecture can satisfy rule requirements
  • Determine the impact of the final requirements on existing regulatory reporting processes

Engage externally

  • Consult with existing custodian(s), fund administrator(s), intermediaries, and other external parties to identify operational and technology gaps, especially for RICs that rely on external service providers to support regulatory reporting activities
  • Assess intermediary and service provider capabilities to absorb reporting requirements
  • Evaluate transformative opportunities to reduce duplicative reporting functions and enhance the current operating model
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How Deloitte can help

Preparation for a new regulation typically requires a phased and disciplined approach. To address the challenges presented by the Modernization Rule, fund sponsors and service providers should develop a detailed understanding of the impact of the requirements and then develop and implement a strategic solution.

Deloitte Risk and Financial Advisory has developed clear standards and methodologies to assist with a controlled and effective implementation of new regulations. Our approach supports executives through requirements analysis, gap assessment, solution design, and implementation. In addition, we have developed and built value-added tools and accelerators to further support the implementation:

Scoping/Mobilization—Key activities that help executives establish project standards, capabilities, and consistencies to develop program governance and drive decision making.

Impact maps and inventory—Process maps and inventories that identify and describe the various ways existing compliance, operational, and technical processes are impacted across an organization. Additionally, the maps and inventories identify where changes will likely be needed to people, process, and technology.

Solution implementation—We work with executives to provide a controlled and cost-effective schedule of activities for executing the solution design, with limited interruption to existing operations. We can also assist with the actual implementation which may involve systems upgrades/configurations, acquisition and integration of data sources, data validation and approval processes, interface development, creation of user guides/playbooks, and end-user training and external website updates to comply with modernization requirements.

Compliance Suite™Deloitte Risk and Financial Advisory’s proprietary technology helps RICs and service providers prepare and respond to the Modernization Rule requirements. This platform is a powerful and dynamic technology solution that assists in the preparation of Form PF, AIFMD, Form N-PORT, N-CEN, and other regulatory filing requirements. It also features broad performance monitoring, pipeline, and relationship tracking circumstances of the investment management industry.

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