NAV Oversight: Global Regulators Urge Funds to Expect the Unexpected

November 16, 2020
NAV oversight, validation, and contingency plans for unexpected disruptive events had been a high priority of regulators long before the onset of the global pandemic. Now, the increasing new expectations from regulators is adding a layer of personal liability to those who help oversee NAV Production.

To expect the unexpected shows a thoroughly modern intellect



– Oscar Wilde

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.   


This table shows the various NAV oversight regulations that oversee the mutual funds industry. The table is organized into three categories: country, regulator, and the corresponding regulations. There are links below the chart to further reading about each of these regulations outlined in the table.

Bottom line

Global managers face the challenge of these ever increasing oversight and control obligations over their third party service providers at a time when operational resources are often already stretched beyond the limit by competing priorities ranging from the pandemic, fee compression, and other regulatory obligations in addition to a very dynamic geopolitical and an environment of market volatility. These factors are driving many to consider a more efficient and scalable NAV oversight program with an appropriate backup process in place to ensure validation of NAVs across their spectrum of third-party providers and fund domiciles. The increasing expectations of regulators is adding personal liability and accountability onto certain senior individuals who help oversee NAV production. You may delegate the task, but not the responsibility. Therefore, responsible individuals are asking themselves whether they should look to better solutions to help with this important responsibility.  

Brown Brothers Harriman & Co. (“BBH”) may be used as a generic term to reference the company as a whole and/or its various subsidiaries generally. This material and any products or services may be issued or provided in multiple jurisdictions by duly authorized and regulated subsidiaries.This material is for general information and reference purposes only and does not constitute legal, tax or investment advice and is not intended as an offer to sell, or a solicitation to buy securities, services or investment products. Any reference to tax matters is not intended to be used, and may not be used, for purposes of avoiding penalties under the U.S. Internal Revenue Code, or other applicable tax regimes, or for promotion, marketing or recommendation to third parties. All information has been obtained from sources believed to be reliable, but accuracy is not guaranteed, and reliance should not be placed on the information presented. This material may not be reproduced, copied or transmitted, or any of the content disclosed to third parties, without the permission of BBH. All trademarks and service marks included are the property of BBH or their respective owners.© Brown Brothers Harriman & Co. 2021. All rights reserved.

This browser is not fully supported by our public website and may not display or function as expected for this reason. Please note, the Infuse Portal and BBH client applications fully support the IE 11 browser.

Important Information for Non-U.S. Residents

You are required to read the following important information, which, in conjunction with the Terms and Conditions, governs your use of this website. Your use of this website and its contents constitute your acceptance of this information and those Terms and Conditions. If you do not agree with this information and the Terms and Conditions, you should immediately cease use of this website. The contents of this website have not been prepared for the benefit of investors outside of the United States. This website is not intended as a solicitation of the purchase or sale of any security or other financial instrument or any investment management services for any investor who resides in a jurisdiction other than the United States1. As a general matter, Brown Brothers Harriman & Co. and its subsidiaries (“BBH”) is not licensed or registered to solicit prospective investors and offer investment advisory services in jurisdictions outside of the United States. The information on this website is not intended to be distributed to, directed at or used by any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation. Persons in respect of whom such prohibitions apply must not access the website.  Under certain circumstances, BBH may provide services to investors located outside of the United States in accordance with applicable law. The conditions under which such services may be provided will be analyzed on a case-by-case basis by BBH. BBH will only accept investors from such jurisdictions or countries where it has made a determination that such an arrangement or relationship is permissible under the laws of that jurisdiction or country. The existence of this website is not intended to be a substitute for the type of analysis described above and is not intended as a solicitation of or recommendation to any prospective investor, including those located outside of the United States. Certain BBH products or services may not be available in certain jurisdictions. By choosing to access this website from any location other than the United States, you accept full responsibility for compliance with all local laws. The website contains content that has been obtained from sources that BBH believes to be reliable as of the date presented; however, BBH cannot guarantee the accuracy of such content, assure its completeness, or warrant that such information will not be changed. The content contained herein is current as of the date of issuance and is subject to change without notice. The website’s content does not constitute investment advice and should not be used as the basis for any investment decision. There is no guarantee that any investment objectives, expectations, targets described in this website or the  performance or profitability of any investment will be achieved. You understand that investing in securities and other financial instruments involves risks that may affect the value of the securities and may result in losses, including the potential loss of the principal invested, and you assume and are able to bear all such risks.  In no event shall BBH or any other affiliated party be liable for any direct, incidental, special, consequential, indirect, lost profits, loss of business or data, or punitive damages arising out of your use of this website. By clicking accept, you confirm that you accept  to the above Important Information along with Terms and Conditions.

 
1BBH sponsors UCITS Funds registered in Luxembourg, in certain jurisdictions. For information on those funds, please see bbhluxembourgfunds.com


captcha image

Type in the word seen on the picture

I am a current investor in another jurisdiction