European investment funds are facing a seemingly never-ending stream of regulations that govern client and regulatory reporting requirements. These have added new obligations that can be especially challenging for smaller firms to manage without the assistance of specialized vendors.
The number of investment funds in Europe continues to increase, and Opimas estimates that European fund managers spent €789 million on regulatory reporting in 2021 (Figure 1). Opimas expects spending to approach €860 million by 2024.
The fund reporting process is surprisingly complex, necessitating calculations for many major European regulations like the Undertakings for the Collective Investment in Transferable Securities (UCITS), the Alternative Investment Fund Manager Directive (AIFMD), Solvency II, Markets in Financial Instruments Directive II (MiFID II) and the Packaged Retail and Insurance-based Investment Products Regulation (PRIIPs). Each of these regulations requires dedicated data and reports be disseminated to specific recipients.
Figure 1. Fund Reporting Spending by European Fund Managers
The increasing regulatory burden has led to the emergence of third-party vendors dedicated to fund reporting and regulatory compliance. Today, many firms operate in the European fund reporting space, including law firms and consulting shops. However, less than a dozen firms cover the entire fund reporting lifecycle or service multiple markets and jurisdictions. Major vendors include: FE fundinfo, Broadridge (Fund Communication Solutions), Compliance Solutions Strategies (CSS), InvestmentDataServices (IDS), Kneip, Lucht Probst Associates (LPA), Fundsquare, Fairmat and ISS Financial Webworks (FWW).
Vendor offerings tend to be rather differentiated. For example, while some concentrate on the production of the necessary documents or calculations, others help fund managers meet data or document dissemination requirements.
The breadth of vendor offerings varies significantly, with FE fundinfo serving the broadest number of requirements, followed by Broadridge Fund Communication Solutions. Both firms offer thorough coverage of calculations, document production, and data and document dissemination services.
The largest providers like Broadridge, CSS and FE fundinfo have grown their geographic and offering coverage through a series of mergers and acquisitions.
While fund reporting vendors have grown in recent years, the rates have been varied.
In the short term, Opimas expects fund reporting to continue to flourish due to additional regulatory requirements coming on the scene, including:
- The application of PRIIPs to UCITS funds marketed to retail clients, which will start in December 2022.
- The second phase of the EU SFDR beginning in July 2022.
These new requirements present a significant challenge to affected firms, as evidenced by the multiple delays and extensions already granted for each regulation.