The new APRA reporting requirements present some serious challenges but we believe they offer opportunities for RSE’s as some of the key components of the requirements align to where the industry has been heading, particularly with respect to improved transparency and oversight over externally managed investments.
We believe the new requirements offer opportunities for RSE’s as some of the key components of the requirements align to where the industry has been heading, particularly with respect to improved transparency and oversight over externally managed investments.
Two Key Challenges in meeting the new Reporting requirements
1) Accessing underlying investment data
There are operational, practical and legal challenges associated with obtaining required investment data. For instance, in many cases the subscription agreements for alternative and/or offshore investments may not provide investors with the right to access this granularity of information. Reliability of the data may also be questionable, especially for those investments traded or valued infrequently. RSE’s need to review their portfolios and identify what investments may be problematic. APRA should be accommodating, particularly where there is a legal or material operational constraint in accessing the required information. But early and proactive engagement with them is important. When investing in new investments RSE’s should ensure that managers are willing and able to meet the new reporting requirements.
2) Managing the Audit Process
Even though the audit requirements have been significantly paired back, management of the audit process will still present a challenge, particularly given the tight (and inflexible) reporting deadlines. Careful planning between RSE’s and their auditors will be required RSE’s should start planning now noting that responsibility for management of the audit engagement will reside with the RSE. When compiling the reporting, RSE’s and their administrators need to ensure appropriate documentation exists to support the results. This could be particularly troublesome where the firm chooses to compile data outside of core systems. Spreadsheets and other ad-hoc tools may not be an acceptable solution to manage the scale and complexity of this reporting.
Turning Lemons into Lemonade
It is clear that these reporting requirements represent an onerous and significant challenge to RSE’s. In many cases, particularly where the RSE has an external administrator, the incentive may be to simply outsource this process to an external party and retain limited internal involvement.
Viewed in this light, it may be concluded that there is limited value to RSE’s in producing this reporting and, consequently, as with all other ‘overheads’ the path of lessor resistance should apply. Our view is that, whilst collecting this information is driven by a regulatory need, much of the data required may have significant value.
For instance, data on underlying investments (particularly those housed within opaque and often complex investment vehicles), provides valuable information to the Trustees. The RSE should actively consider how this information may be re-purposed for internal consumption.
Whilst the mechanical process for compiling reports may be delegated, we believe that the RSE’s should retain active involvement. Not only will this ensure that that they retain appropriate ownership of the APRA reporting process, but it will enable enhancement over the quality, depth and robustness of management and trustee reporting.
RSE’s have been grappling for some time on how to improve their level of understanding over its investments, members and fund operations. To take a ‘glass half full’ view, the new reporting requirements have provided the industry with the necessary impetus to tackle this issue. What remains to be seen is whether the industry can see past the compliance only issue to one that can provide meaningful information to management and the trustees.