The global asset management industry has remained steadfastly resilient in the face of an unparalleled global pandemic which forced a rapid and wide scale shift to remote working environments via mass deployments of business continuity plans (BCP) for longer periods than anyone could have expected (or budgeted for that matter). This shift has challenged many asset managers’ ability to meet investor deliverables and ever-growing regulatory obligations in a fast-moving environment. With the initial shock of this shift to remote working dissipating and remote working increasingly becoming the norm,, the demeanor of the industry has decidedly moved on from crisis management to focusing more on defining optimal processes to ensure robust, scalable oversight and control of their operations to facilitate growth plans halted when the pandemic began.
Similarly, several global regulators have paid special attention to matters of operational resiliency specifically impacted by the pandemic, such as cybersecurity, data protection, and business contingencies, in an effort to ensure investors remain protected despite the ongoing tumult which has come to define 2020 so far. Further, regulators remain fixated on fund and asset management outsourcing, with IOSCO, the global umbrella for securities regulators, recently publishing a consultation on the principles for outsourcing -- which consists of the critical sub-set of fund administration and NAV production. If any more evidence was needed, just last week, the highly influential Financial Stability Board (FSB), the international body that monitors and makes recommendations about the global financial system, ensured oversight and outsourcing remains high on asset manager agendas by releasing a consultation paper focused on the risks and complexity of modern day financial service supply chains. This laser focus on oversight and control of third-party relationships is not going to contract at a global level any time soon.
The requirement for administrator oversight has always existed for funds to a greater or lesser extent. But the stakes continue to rise as regulators get more anxious about systems stability and resiliency, and the growing complexity and global dispersion of delegation and outsource models. NAV oversight, validation, and contingency plans for unexpected disruptive events had been a high priority of regulators long before the onset of the pandemic. In the months since, the focus on having robust surveillance and a “plan B” should it be required has only been amplified. Operational resilience, or being able to prevent, respond to, and recover from unexpected internal or external shocks and disruptions while maintaining the same expectations for accuracy and timeliness, is an area of non-financial risk that has climbed regulatory agendas since the onset of the COVID-19 pandemic. In turn, many global asset managers have sought to re-evaluate their operational models and contingency arrangements, both internally and at their current administrators.
One defining characteristic of global NAV oversight regulation is that although every regulator has some form of rules or opinion on the matter, there exists a divergence of approaches. Adding to lack of consistency, often there are several different conduct rules which intersect but all relate to oversight and validation of NAV production. It can be a complex web, but with a unilateral aim of ensuring fund investors get their NAVs delivered in an accurate and timely fashion. Also, you’re an asset manager and a disruption to your standard process, the responsible parties (asset manager, management company, board of directors) must have a contingency plan particularly if the outage is likely to persist for an extended period. The additional and ever-increasing regulatory scrutiny relating to risk culture and individual conduct and personal accountability means a far greater focus at senior level of asset managers on general considerations of operational resilience, including NAV oversight, validation, and contingency. Asset managers should be objectively assessing how well prepared their firm and funds truly are for managing future disruptive events. Is your plan robust? Or, as Mike Tyson opined, are you going along until something out of the ordinary disrupts all best laid plans?
Now with that cautionary tale out of the way, let’s take a whistle-stop tour around the globe and look at the various NAV oversight regulations that oversee the mutual funds industry.