SEC regulations are driving industry-wide investment in data management and processing for reporting and liquidity risk requirements, according to a State Street report.
New global regulations and volatile market liquidity are prompting a majority (56 percent) of surveyed asset managers and asset owners to increase their technology and operational capabilities over the next year, in order to better manage financial and other data needed to meet regulatory compliance deadlines.
That’s the top-line takeaway from “Let’s Talk Liquidity: Opportunities in a New Market Environment,” a research report from State Street Corp., a provider of financial services to institutional investors.
The report is based on State Street’s survey of 150 asset managers and 150 asset owners, and it finds “that despite compliance deadlines being a year away, many fund managers have begun taking the steps needed to be compliant in a complex rapidly-changing regulatory environment.”
Other findings from the survey:
- “42 percent of institutions are concerned about their ability to meet liquidity compliance rules and provide accurate liquidity status reports to external regulators, in addition to their own management boards;”
- “47 percent [of institutions] intend to rely more on external partners to improve their performance in this area, as nearly one in five institutions feel their reporting and workflow solutions for their regulatory jurisdictions are not developed enough.”
State Street also notes that, according to an October 2016 notice from the SEC, “Fund complexes with over $1 billion in net assets must file new regulatory reports beginning June 2018 … and each open-end fund (other than in-kind ETFs and money market funds) must establish and administer written liquidity risk programs with oversight by their boards that, among other things, classify each investment holding of the fund into categories based on settlement periods and limits a fund’s holdings in illiquid assets to no more than 15 percent.”
State Street tallied $29 trillion in assets under custody and administration and $2 trillion in assets under management (AUM) as of the end of 2016.
Over the past five years, State Street itself has significantly strengthened its own “risk, compliance and controls infrastructure,” according to a statement made earlier this year in connection with a settlement the corporation reached with the U.S. Department of Justice and the U.S. Attorney for the District of Massachusetts, concerning six clients overcharged for transition management services, in 2010 and 2011.
Those changes to its own infrastructure following the settlement included:
- “More than doubling its headcount in compliance;
- “Significantly increasing its investment in compliance, audit and risk management;
- And “implementing firm-wide programs on ethical decision making and encouraging employees at all levels to speak up if they see something wrong, and to challenge decisions or actions if they think they’re wrong.”
“Across the globe, regulations are increasingly focused on data transparency, portfolio holdings, valuations and liquidity, as well as increased reporting to both 
investors and regulators,” says Brenda Lyons, executive vice president and head of State Street’s specialized products division, in a statement concerning the survey results.
Lyons also points out that the new SEC rules are “focusing on monitoring, managing and reporting a broad spectrum of data. Fund management and boards have been actively evaluating and planning for how to best address these regulations within their operations to achieve compliance by the specified date.”
(Incidentally, FTF News readers may want to know that, in addition to its survey, Boston’s State Street is responsible for the recent, widely noticed installation of the so-called Fearless Girl bronze statue on Wall Street, on the occasion of International Women’s Day.)
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