April 2014 - Word from the CEO

From the CEO

KYC for investment funds is complex and it is time for a centralised solution

The KYC or "Know Your Customer" checks and controls that investment funds are required to carry out have become increasingly complex.

Transfer agents and management companies are faced with a situation where the variety, number and depth of controls are growing. They also need to supervise multiple distributors in many different countries and decide on appropriate due diligence measures depending on the distributor.

Operational efficiency meets risk management

At the same time, management companies and distributors are faced with duplication of tasks and redundancy of controls. The current variable they can play with is either to decrease the breadth and depth of controls or to reduce business profitability.

Also, fundamental for all actors in Europe is the need to reduce the onboarding time for new business.

As a result of these two conflicting pressures to manage risk through more controls and to operate efficiently through less, we are seeing more demand from fund actors for increased outsourcing.

Time for a central repository

Europe needs to evolve its fund distribution model to make it more cost effective and a strong, streamlined operating model will be key for success.

However, at the moment, the overriding objective for the industry is to reach a level of sustainable compliance. All actors are confronted with multiple points of truth and this leads to inefficiencies and risks.

At Fundsquare, we are convinced that the only way forward is via a central repository.  

This will allow for a single point of truth for documentation, as well as shared operational services and harmonised and systematic controls. 

From a conceptual standpoint, the reasons for creating a central utility for KYC are self-evident.

Benefitting the entire fund industry

A centralising effort will benefit the whole community: management companies, transfer agents and distributors will only have to support the workload related to exceptions handling, there will be a common approach to documentation and more clarity as regards the cost of onboarding new distributors.

Nevertheless, this is easier said than done. KYC is a very complex area and there remain issues to be settled before the industry can move to mutualised KYC services. Chief among these is the question of the preservation of KYC responsibilities with the management company and transfer agent and how a tripartite delegation of KYC activities can be done. There is also the question of modularity of services.

Based on our past experiences with data and information repositories, we believe these challenges can be met and a centralized hub for KYC is the way forward for the fund industry.

Dominique Valschaerts
CEO, Fundsquare

_{Published on: 30 April 2014}
 

Fundsquare News 9 - April 2014