Having reliable, verifiable and comparable data about investment fund products is at the heart of winning trust from investors more than ever in a post-MiFID II market.

“Teething troubles” is one of the more polite descriptions of how the investment funds industry is struggling to digest MiFID II and Priips. A particular concern is how data is being handled and communicated to distributors and finally to investors. One of the aims of these regulations was to present costs and prices in a consistent, comparable way. However, so far the way rules are applied has lacked consistency amongst actors and is often riddled with anomalies. Furthermore, add to the mix of data collection cost, the potential for error, and the industry risks reputational damage if the promises of greater transparency for investors are not met.

Didier Kayl

Head, Business & Relationship Development, Client Service Management, Fundsquare

Everyone in the investment fund supply chain has to contribute actively to ensure effective processes.

Even though these problems are increasingly being considered by supervisors, business life has to go on. Distributors must receive the information they need to ensure their clients are well served. Everyone in the investment fund supply chain has to contribute actively to ensure effective processes, even if these data handling tasks can be somewhat cumbersome and costly. In particular, investors are demanding clear, comparable information on costs and returns. They want to know in near real-time and in detail how their investments are being managed.

Yet, even within the industry, there is confusion. Too often comparisons are being made between incomparable numbers such as ongoing cost figures (OCF), European MiFID template (EMT) data, and European Priips template (EPT) data, including the so-called “comfort EPT” (CEPT). This is really comparing apples with oranges, as all this data is compiled in a different manner. But even more fundamentally, the data that underpins these calculations often comes from a variety of sources and formats, as well as the lack of consistent approach in different jurisdictions. Also often lacking are robust, clear, comparable audit trails.

A case study of how to address these questions might be found in the life insurance sector. The “look-through” rules implemented in the Solvency II directive requires substantial effort from fund managers and their service providers. They need to demonstrate to insurance firms the risk/reward profiles of underlying assets and investments. While some are still calling for these requirements to be relaxed, the industry has made substantial progress getting to grips with these rules. Indeed, insurance firms that have mastered these details have been able to use them for marketing purposes.

The solution has been work on defining standards and new processes in order to drive up data quality, delivered in a comprehensive, timely, reliable way. The result has been the establishment of a market standard, the tripartite template (TPT). This is the second attempt by the funds industry to create a funds-data multilateral-exchange solution; the previous effort was the fund processing passport (FPP) project led by EFAMA. Nevertheless, too often, exchanging data point-to-point remains the highly inefficient default option. Fundamentally, what the industry need is to achieve the most efficient data-sharing model is about market infrastructure supported by cutting-edge technology. This ensures the delivery of compatible, comparable, reliable data from across the entire fund supply chain, with all participants finding its cost-efficiency value.

Having these quality assurances in place at every stage gives asset managers added credibility in their conversations with all data consumers: clients, partners, suppliers and regulators. Regardless of the steps they are required to follow, excellence in data management proactively puts fund businesses on the front foot.

Funds Europe, June 2018

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