What are the biggest compliance challenges for Hedge Fund managers?

28th June 2019 3588 - Blog Posts

Since the financial crisis, there has been more and more regulatory pressure for hedge fund managers as AIFMD, MiFID II, SMCR, the Dodd Frank Act and ever-tighter anti-money laundering regulations have come into play. All these regulatory changes require stronger reporting requirements and greater transparency, which is difficult to achieve without regulatory hedge fund software or managed compliance support.

Post-Brexit uncertainty

To add to the regulatory pressure, there is still uncertainty surrounding Brexit which could apply to hedge fund managers, including a potential loss of passporting rights in the case of a hard Brexit. Many larger and more established funds have already started to implement contingency plans, either by relocating operations or by applying for EU licenses, but for emerging and start-up fund managers, managed compliance support and software such as Lawson Conners Discovery platform, could be sensible option to negate risk, reduce cost and increase speed to market.

Managed Compliance - Lawson Conner

The lack of clarity, when it comes to negotiating regulations could be exacerbated for hedge fund managers as the FCA has also announced that it sees Brexit as an opportunity to rethink how it operates. This suggests that further changes in regulation could be looming, which would add extra complications to launching a fund and establishing a robust compliance framework.

 

Increased investor scrutiny

Investors themselves are also placing more scrutiny on compliance, and operational due diligence, which makes it more crucial than ever for hedge funds invest in. A recent survey from Corgentum, for example, found that 79% of analysts surveyed were spending more time analysing due diligence and regulatory risks in funds, compared to last year.

Further emphasis on culture and governance

The role out of SMCR to all firms in December has firmly placed the emphasis on culture and governance for hedge fund managers. The FCA has also outlined this as one of its key priorities for 2019/20, and it has already started to place greater emphasis on the non-financial conduct of approved persons when it considers direct authorisations. For hedge fund managers, especially smaller and emerging firms, this could be another factor in favour of using hedge fund compliance software to launch a fund, and with the knowledge you have a robust, sophisticated and ongoing regulatory framework.

Lawson Conners managed compliance solutions and software help fund managers to meet reporting requirements, stay abreast of fast-changing AML directives and provides a robust regulatory infrastructure. We strongly believe that firms should concentrate on core, profit-generating activities and have piece of mind their compliance and regulatory function is taken care of.

Joe Woodbury
Director, Investment Management Solutions

E: jwoodbury@lawsonconner.com
D: +44 (0) 203 696 2560