3 Ways to Support SEC Modernization

If you are anything like me, you open your inbox each morning to find it full of emails from the various industry news aggregators. Lately, it seems there hasn’t been a day that doesn’t mention some upcoming regulation (or possible delay!): MiFID II, DOL Fiduciary Rule, BCBS 239, Form PF, GDPR…more acronyms than a millennial’s twitter feed (LOL). 

One of the rules that we get asked about the most is SEC Modernization. If I had to give my “Regulation for Dummies” synthesis I’d say that by and large, the goal of the rule is to replace an antiquated, legacy reporting process with a “modernized” reporting process. This new process aims to facilitate higher quality data, in a structured format and in a more frequent, streamlined fashion. Ideally, this will allow the SEC to better analyze a fund’s compliance and risk exposures. The rule, which goes into effect June 1, 2018, establishes enhanced reporting for registered investment companies including: 

• New Form N-PORT (replaces Form N-Q) – a monthly portfolio report containing reference, ledger, position, and analytics data elements 
• New Form N-CEN (replaces Form N-SAR) – a yearly census report including information about the manager, management company directors, and chief compliance officers 

What does this mean for impacted firms? IMO this is mostly an exercise in data management and aggregation; however, to give you an idea of the impact to people and processes, the SEC estimates that form N-PORT alone will take 198 hours per fund the first year and 168 hours per fund each subsequent year.¹ OMG.

Though we don’t typically recommend specific regulatory solutions to our clients, we do advocate understanding regulatory impacts and how to address them. When it comes to SEC Modernization, we see three approaches: through a holistic software solution, through service providers, or DIY.

Holistic Software Solution

If you have a holistic software solution, chances are your vendor is working to accommodate SEC Modernization. For those who want to solve for enterprise data management and regulatory reporting holistically, turning to your technology provider for guidance is an excellent option. One firm that has been particularly vocal on the subject has been Eagle Investment Systems. Eagle analyzed the data points required in the new forms and found that they already support most fields in their current data model and their data model and generic interfaces will be extended to those that they do not already support. They have also formed a strategic alliance and are developing standard integrations with vendors including ICE to supply the additional data elements required for N-PORT, as well as Donnelley Financial Solutions to support the N-PORT and N-CEN filings via their FundSuiteArc product. FMI visit Eagle’s website.

Service Provider

You can expect any of the service providers (who currently offer regulatory reporting services) to provide support to their clients for SEC Modernization. Northern Trust recently announced that they too would be collaborating with Donnelley Financial Solutions to support filings of N-PORT and N-CEN for their clients. FMI read the press release here.

Other leading service providers are taking on compliance in-house on behalf of their clients. State Street was one of the first to publicly announce their service to address SEC Modernization after the finalization by the SEC in October. Using their proprietary software, State Street will aggregate the data points, perform the calculations, and create the reports in the required formats to help their clients meet the compressed reporting timelines. BTW, for those firms with multiple service providers, I believe that State Street can aggregate data for funds not serviced by State Street. FMI visit State Street’s site here.

DIY

For firms who are looking to DIY, there are vendors who are offering specific point solutions. Confluence has been a leader in the regulatory reporting business for years so there is no surprise they are a leader here. Confluence touts a full end-to-end solution via partnerships with market data providers and risk management specialists that will aggregate the data points, produce the reporting and finally, perform the filings in the click of a button. FMI read about Confluence’s solution here.

Chances are you have already started to have conversations on how your firm will address SEC Modernization but if you haven’t, now is the time to assemble resources to discuss how you will address the rule from an operating model and technology standpoint. And if you haven’t already, reach out to your vendors and/or service providers to see how they can help your firm meet the June 2018 deadline.

EOD.

1. https://www.sec.gov/rules/final/2016/33-10231.pdf

Acronym key: LOL=Laughing Out Loud, IMO=In My Opinion, OMG=Oh My God, BTW= By the Way, FMI=For More Information, DIY=Do It Yourself, EOD=End of Discussion