New research from regulatory and compliance experts Bovill Newgate in partnership with Ocorian, provider of services for funds, corporates, capital markets and private clients, reveals that despite saying they take governance extremely seriously and have the right skills at the most senior level, a raft of fines and sanctions in the last two years and other contributing factors is driving alternative fund managers to significantly step up their focus on governance over the next 24 months.
Almost all (99 per cent) senior leaders and senior compliance and risk executives surveyed at alternative fund manager firms which collectively manage around USD132.25 billion AUM, say the board and senior management at their firm already take governance seriously – with 54 per cent saying they take it very seriously. Almost all (93 per cent) say the board and senior management already have the required blend of skills to conduct its duties correctly and have effective roles in place to manage and mitigate governance risks.
However, the international study by Bovill Newgate and Ocorian, reveals that despite this more than two thirds (65 per cent) have been subject to governance related fines or sanctions in the last two years. A further 12 per cent have received an information request or visit from the regulator in the last two years.
While 70 per cent say their organisation has already increased its focus on governance during the past two years, a number of contributing factors including the numbers of governance related fines and sanctions has led to more than nine in 10 (90 per cent) saying that they see the focus their organisation places on governance increasing over the next 24 months. Of these, almost a third (30 per cent) say this will increase dramatically.
There are many ways in which this increase in focus can be achieved but of those surveyed, almost all (96 per cent) say it’s important for their organisation to use an independent specialist risk and compliance company. Over half (55 per cent) say it’s very important and only 4 per cent say it’s not important.
Paul Ford, Head of Regulatory and Governance, at Bovill Newgate, says: “The alternative fund managers we surveyed have always taken governance extremely seriously, but the regulatory landscape is constantly changing and becoming even more complex, particularly for the global firms.
“For almost all firms, the survey demonstrated the importance to use an independent specialist risk and compliance company. An independent company not only brings specialist skills and experience that is very difficult and time consuming to recruit to in-house, but also technology, software and processes to manage complex frameworks and structures.”
“As alternative fund managers and other clients look to increase their focus on governance, we recommend following a three lines of defence approach to protect their businesses – firstly, implement robust procedures, policies and training; secondly, comprehensively monitor these; and finally, review and challenge through independent audit.”
Ocorian lists its three lines of defence approach to tackle risk and compliance challenges:
· Line one: create clear and robust frontline processes and procedures, supplementing this with both online and face to face training programmes for staff.
· Line two: build and empower a comprehensive compliance oversight function which monitors and assesses the processes and procedures, as well as advising and supporting staff and senior managers to comply with the firm’s obligations.
· Line three: seek review and challenge of the firms AML framework via annual independent audits.
