When Transparency is Really Opaque

Date: March 9, 2015

With the January 31 filing deadline behind us and close to one thousand alternative investment fund managers having filed under AIFMD for the first time to the Financial Conduct Authority (FCA) of the United Kingdom alone , it’s time to take a deep breath and look at some of the challenges faced.

While the business requirements of the AIFMD Annex IV Transparency Report were clearly outlined by the European Securities and Markets Authority (ESMA) and well clarified by individual national competent authorities (NCA) such as the FCA, the technical requirements continue to be challenging for both regulators and filers.

As the NCAs are translating the Directive into their own laws, it appears that the technical requirements are taking a back seat in the process. Most regulators have been focusing on the data they want out of the report and have forgotten about how they will actually receive the reports. Even with the technical guidance and the XML schemas provided by ESMA, alternative investment fund managers are finding that iteration after iteration of technical guidance is proving to be difficult to accommodate. With each jurisdiction opting to accept its own version of the report in its own manner, filers having to file in multiple jurisdictions are stuck with a time-consuming process to figure out who takes what.

The FCA’s Gabriel, which is considered to be the most advanced reporting system in terms of allowing the AIFMD Transparency Report to be electronically filed, generated quite a few hiccups in the January filing cycle. The first and foremost problem was access – even as the deadline was rapidly approaching, many managers were still unable to obtain access to the system. Even though the FCA assured managers that they would not impose penalties for late filing due to access issues, it still caused a lot of stress and headaches for those involved.

Once that obstacle was removed and they could actually get into the system, managers began to learn that there were discrepancies between what the Gabriel system accepts and what the technical guideline provides. Because a testing environment for these reporting systems is still an extravagance in the early stages of filing under the Directive, many of these issues were only discovered once asset managers were in the process of filing. These issues were not unique to the FCA’s Gabriel system and many managers were facing similar dilemmas across multiple jurisdictions.

In one scenario, the managers discovered in the two weeks prior to the filing deadline that they were required to file to additional jurisdictions.  As they scrambled to obtain the additional access, data and formats that the NCAs would accept, Confluence worked closely with our clients and developed codes to accommodate the filings. In another case, we found out a few days before the deadline that the prepared filing was not required until next quarter. There were times when we learned how to file the report to a particular jurisdiction through an email correspondence of that NCA.

With each national competent authority carrying a slightly different version of the report, developing its own reporting portal, and in some cases requiring additional mandatory fields, the requirements for the transparency report remain opaque.