By Simon Gordon, Senior Director – Fund & Corporate Services, JTC
The days of running key tasks for a LSE traded investment fund on a spreadsheet are thankfully a dim and distant memory.
Regulatory and legislative developments mean that listed funds must also ensure they conform to the highest standards while continuing to monitor and anticipate future movements. Technology has the ability to remove human input error and make substantial efficiencies in the face of rising regulations.
Market Abuse Regulation (MAR)
MAR is one area that has grown in terms of complexity and the prescriptive nature of its regulation. It is a prime example of how technology-based solutions can bring significant advantages.
Having taken effect in 2016 and intended to sit alongside MiFID II and MiFIR, MAR is a substantial set of regulatory reporting requirements covering insider dealing, unlawful disclosure of inside information, and market manipulation.
Regulatory bodies are clearly and keenly focused on ensuring appropriate systems and procedures are in place to maintain accurate records compliant with MAR. If a Company Secretary’s procedures are found to be substandard, the Financial Conduct Authority can impose sizeable penalties on the listed entity.
In 2020 individual directors being fined in the region of £40,000 for what could be deemed technical breaches of persons discharging managerial responsibilities (PDMR) regulations.
In addition, criminal sanctions for insider dealing and market manipulation can incur custodial sentences of up to seven years and unlimited fines.
Reflecting the complexity and extent to which firms must go to evidence compliance with the regulations, insider lists must include everyone related to the board, the Manager and various advisers.
The list can be a long one and 21 separate pieces of information are required to be stored on each individual and in a prescribed format. Anything that is deemed insider information has to be recorded immediately and time/date stamped.
Environmental, Social and Governance (ESG)
Prompted in part by the COVID-19 experience and the demands of the next generation of investors, Environmental, Social and Governance (ESG) investing is another area where regulations are developing apace. Transparency reporting, independent ESG audits and other matters are already important to potential investors who are increasingly sophisticated, conscious of greenwashing and are demanding clear evidence of ESG performance.
In the ESG sphere, regulatory frameworks continue to evolve in different markets at different speeds – the introduction of the SFDR in the EU in March is a case in point – underlining just how imperative it is for fund administration firms to embrace technology in order to be able to provide their clients efficiently with the bespoke service, data and reporting they need.
Tech to the rescue
Bespoke digital solutions to information accuracy is no longer an aspiration for service providers – it is a core component of their offering. JTC is no exception and the investment we have made in cutting-edge systems to address MAR, ESG reporting and other regulatory obligations has become a fundamental part of our offering.
Fund administrators and company secretaries have proven the benefits of technology during the pandemic – greater flexibility, personalisation, better accessibility, slicker sharing, and less waste. As this experience has been well received by most boards, the expectation is that this approach will continue.
There is no doubt that for fund promoters, when it comes to selecting an outsourced service provider to act as company secretary and fund administrator, an ability to apply technology successfully has become a key issue.
With promoters now looking more closely than ever at how tech-based systems can support their needs when carrying out due diligence on a prospective partner, an ability for a service provider to demonstrate that it is ahead of the game has become vital.
If you would like to discuss this article with Simon, or find out about our listed funds service offering, please contact him directly.