Moving Onto a Global Regulatory Platform for Better Disclosure

Global regulatory platforms offer benefits for regulators and fund companies alike as they try to keep pace in the fast-moving, document-to-data evolution that is fundamentally reshaping data disclosure.

Businessman sitting at his desk using a phone with his laptop open

About twenty years ago, vinyl music was still alive and kicking, and millions of CDs were still being sold inside physical stores. Firms like Napster were waking up to the massive potential of online music. And, of course, there was Steve Jobs and iTunes. The point is that there were several formats and platforms of music available at the time.

It’s not a stretch to think of regulatory disclosure in a similar way, but with an important twist.

Like music years ago, there have been a variety of formats available for fund companies to use in sending their data to regulators. Companies sent multiple forms of data along multiple platforms to multiple regulators.

But then the regulators decided that XML — the MP3 in this music comparison — was to be the only format for data going forward. On June 1, 2018, Forms N-PORT and N-CEN became effective, replacing the existing Forms N-Q and N-SAR.

In other words, say goodbye to PDF — the disclosure world’s equivalent of the cassette tape.

This shift to data-driven filings allows a regulatory platform — the filings equivalent of iTunes — to exist. At the same time, modernizing regulations drive firms towards new technologies, the influence of which requires companies to adopt platform-based filings solutions in order to accommodate the new volume and frequency of reporting stemming from those modernized regulations.

The bottom line? Analog disclosure methods no longer suffice in today’s digital disclosure world. Gone are the days when creating and sending a few PDFs to regulators was sufficient. 

It’s no surprise, then, that companies are moving to global regulatory platforms in finding digital solutions for disclosure of three tiers of common data — data, Regulatory Book of Record, and global filings — in the fast-paced, document-to-data evolution that is fundamentally reshaping the world of data disclosure. Virtually every aspect of filings is now more complex than ever.

In short, it’s all about N-PORT (in the U.S.) and XML (domestically and globally) these days — formats and data sent and received across global, digital disclosure platforms that are responsive and scalable.

Regulators are driving disclosure changes

But step back for a moment to look at what’s going on from the regulator side of the ledger, as changes here are the prime movers of the document-to-data evolution.

Over the last decade, regulators have sought more transparency of risks at the company level and the system level. By extension, the pursuit by regulators of their very laudable policy objectives — including the prevention of another global financial crisis and increased transparency of corporate risks — has been a key driver of the document-to data-evolution. The recent request by President Trump for the SEC to review its policy of quarterly earnings reporting adds new — and, for the moment, uncertain — dimensions to this evolution.

These days, regulators ask for and scrutinize more data for more reasons, not the least among them being a desire to measure data against a widening variety of risk metrics.

Gathering and synthesizing data into a compliant format can be challenging for companies that don’t have the right reporting platform to help them control all of their filing content and data.

Under new SEC regulations, for example, open-ended mutual funds are subject to more rigorous reporting requirements for data and liquidity risk in their Form N-PORT filings. Gathering and synthesizing this data into a compliant format can be challenging for companies that don’t have the right reporting platform to help them control all of their filing content and data.

This change highlights how the underlying “pull-push” dynamic between regulators and fund companies is evolving — putting greater onus on regulators to be ready and able to receive the quantity and kind of data they are calling for, and at the same time greater onus on fund companies to prepare and provide this data. When you factor in the global dimensions of many company’s regulatory disclosure requirements, the added burdens on fund companies increase almost exponentially.

What do those disclosure changes look like?

These disclosure format changes are overdue. And they are welcome, as XML has several advantages as a data format. For example, it’s transparent, flexible and adaptable.

“Regulators want greater visibility of liquidity,” said Eric Johnson, president of DFIN’s Global Investment Markets. “Form filing doesn’t help them do that. But the move to XML will. At the same time, XML’s many attributes make it attractive for fund companies to use as they streamline their data processes.”

To prepare for that big change here at DFIN, we submitted SEC modernization test filings of NPORT-P, NPORT-NP and N-CEN with SEC on the first day of test filing in September 2018. We created and filed these test filings using ArcFiling, our cloud-based compliance solution that automates the collection, creation, review and self-filing of Forms N-PORT and N-CEN. ArcFiling provides firms with a single source for the data, validation and filing capabilities to meet the N-PORT requirement.

More recently, we announced a joint regulatory reporting solution that integrates Bloomberg’s liquidity data with ArcFiling to help mutual funds comply with new requirements mandated by the SEC’s liquidity and reporting modernization rules. Bloomberg’s data includes all three areas of the modernized Form N-PORT filing: reference data, risk data and liquidity, and covers an expansive range of asset classes, including equities, bonds, municipal securities, structured products and more.

DFIN also has partnerships with ICE, Eagle and MSCI. By having four major industry partners, we offer a wide range of data and risk metrics within our “family” of data providers that can support any client. With our new platform we are data-source agnostic, like iTunes, meaning we can provide a complete solution with any of the major players, or practically any data system.

Expanding global dimensions to filing

Regulators are increasingly working with their global peers in pursuit of the policy objectives mentioned earlier. For instance, the Financial Stability Board — created in the wake of the global financial crisis — brings together “all the main players who set financial stability policies across different sectors of the financial system … at one table. So when policies are agreed, they also have the authority to carry it out.”

However, fund companies operating in more than one jurisdiction still have to report to all the relevant regulators outside of their home jurisdiction. These regulators aren’t operating in silos, resulting in a lot of overlap in filing requirements to the regulatory bodies. Therefore, the complexities and risks attached to a company’s international footprint from a disclosure perspective are multiplied several times over when considering the global dimensions of filing.

For fund companies, managing these complexities and risks is expensive — errors can be quite costly.

Disclosure errors which may initially appear to be — and perhaps are — relatively small in nature, can lead to bigger problems if not dealt with promptly and proficiently. Add in the risks — plus the expensive distractions of both time and talent — of possible litigation stemming from filing omissions or oversights, and suddenly you have a lot on your hands in addition to running the company.

What are the benefits of a global regulatory platform?

But it need not be that way, as there are several tangible benefits to using a global regulatory platform for disclosure.

Regulators — which often overlap, as mentioned above — are asking for similar information in similar formats. A global platform makes sense as an efficient way to deliver all that data in this overlapped regulatory environment.

And in a world in which disclosure is moving ever-faster towards XML in the U.S. and other jurisdictions, leveraging XML-based disclosure processes to file to the SEC allows companies to repurpose that data when filing outside of the U.S.

Global firms have feeds from several third-party party administrators and portfolio systems. And in a world in which disclosure is moving ever-faster towards XML in the U.S. and other jurisdictions, leveraging XML-based disclosure processes to file to the SEC allows companies to repurpose that data when filing outside of the U.S.

A cloud-based platform makes the process of handling highly complex filings easier when those filings are all managed through a single source.

In other words, a unified, global platform aggregating all third-party disclosure forms to meet domestic and international regulatory requirements drives efficiencies throughout a company’s filing process. It gives them increased control through one platform, and allows them to understand their own business better.

This global approach also mitigates compliance-based risks stemming from the sheer volume of filings, their inherent complexities, and the risk calculations baked into disclosure.

What’s more, global regulatory platforms generate benchmarking for companies to monitor. For example, any given fund company could review filings-generated benchmarks to assess their relative position on a risk and/or liquidity metric. They get a dashboard view of themselves, and the sector as a whole.

DFIN’s anonymized benchmarks, once launched, will highlight industry averages that clients can see in assessing their own filings performance and processes. This benchmarking tool thus informs companies how they should streamline their resources to stay abreast of disclosure regulations on the national and global stages.

This discipline has knock-on benefits to the financial services system in terms of those broader public policy objectives of increased transparency and enhanced resilience. In that sense, benchmarks become best practices, to the betterment of everyone.

“Regulators and fund companies both want to streamline their global regulatory platforms to maximize efficiencies across the data supply chain,” says Johnson.

“Rapid advancements in those platforms today mean that in three to five years we’ll be much farther into a world of digital data solutions and much farther away from the analog systems of yesterday.”