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Making Data Automation Easy

By Steve Barnes, CTO  

At AQMetrics we make our business applications user friendly for both power users and non-power users alike. To this end, we have recently looked into ways to make loading fund and related data accessible to all of our clients regardless of their technical knowledge.

Creating file based extracts for data loading into any system is a task which typically requires an I.T. function or a data warehouse team to build extracts from the source system e.g. a fund accounting platform, and deliver that data securely to a system which will load it and process it in a secure and performant manner.

At AQMetrics we know that we need to offer flexibility to both large asset service providers and hedge funds alike across our applications. Further, customer facing teams, compliance and other business functions are realising that data warehouse issues are their issues when it comes to regulatory risk. Ensuring data quality has typically been a responsibility of back office teams only, but this is no longer acceptable.

In consideration of this, we have a three-way data management which embraces automation making the process easier on teams of all sizes and expertise.

  1. Flexible APIs allow for machine to machine data loading automation with real time error handling and reporting.
  2. User initiated batch uploads places the power in the hands of the business user, to create their own files in .csv or Excel and upload through their personal dashboards.
  3. The AQMetrics Data Maintenance hub allows for niche data to be maintained in the application that requires it.

The above capabilities allow all users to upload their holdings, security master, counterparty and many more risk and regulatory data feeds into the system and easily maintain it once it is there. For user initiated data feeds, the platform applies the same rigour for validation and error handling as it does for the automated API driven processes. When a user uploads a file via the AQMetrics dashboard, the dashboard widget reads the Excel file and ensures it is correctly formatted before handing it to a powerful ETL tool behind the scenes which loads the data. This will suit firms with a short supply of IT skills in house. The AQMetrics data management dashboard provides feedback on data loading with additional applications for users to check data performance. As a result, firms are more in control of their data accuracy and quality.  

Once the data is loaded into the AQMetrics platform, there are many ways it can be used.  As we discussed in our recent webinar, the data required for regulatory reporting is a valuable asset and should be repurposed to do more for a fund manager. Innovative strategies including Machine Learning and Artificial Intelligence (AI/ML) can be used on repurposed regulatory reporting data.

  • Business Rules, such as the well known prospectus based limitations on how a fund invests or regulator driven UCITS or ‘40 Act rules can be executed on the data to ensure investment compliance is adhered to on a quarterly, monthly or daily basis. Specific fund based rules can also be created using the AQMetrics rules engine such as limits to counterparty or geographic exposure. My next blog will be about the AQMetrics rules engine and what it can do for you.
  • Intuitive Dashboards, which update in real time, gives a manager a top down view of their portfolios under management or a bottom up view of each fund one by one. Using this view combination managers can see their data sliced and diced in a way which is rarely accessible.  This transparency becomes useful when a manager has their funds managed across multiple administrators.
  • Outlier Analysis AI/ML technologies find outliers in data, helping the fund manager identify red flags and look deep into the underlying data.

Flexible data management provides for deeper insights and better operational outcomes for all users through a combination of the strategies above. With this kind of approach, the risk and regulatory reporting system becomes available to all to augment and provide data insights beyond the original intended purpose. Intelligent user interfaces, machine learning and data analytics are now becoming widespread. The opening of these applications and technologies to all will lead the industry into an era of rapid learning and improvement, and ultimately a solid foundation for compliance.

Listen back on our recent webinar. To receive our next blog sign up to our mailing list here


Blog

AIFMD Amendments under a No-Deal Brexit

On 21 February the UK Treasury published its preparations for a no-deal Brexit called the Alternative Investment Fund Managers (Amendment etc.) (EU Exit) Regulations 2019.

The main objective of these regulations is to ensure smooth sailing in a no-deal Brexit and the amendment of the UK’s Alternative Investment Fund Managers Regulations 2013 in such circumstances.

The keypoints are:

  • The EEA passporting system will no longer apply to UK Managers of AIFMs therefore all references to the European Union become the United Kingdom and all references to ESMA become the Financial Conduct Authority (FCA).  
  • There is no onus on UK authorities to cooperate with EU authorities without a guarantee of reciprocity.
  • “AIF” refers to any investment fund that is not a UK UCITS fund (as defined in Directive 2009/65/EC, the “UCITS Directive”).
  • Funds that are recognised under Section 272 of the Financial Services and Markets Act 2000 will no longer be subject to the reporting requirements of AIFMD.
  • A temporary permissions regime has been introduced by the UK Treasury for EEA AIFs and UK AIFs that are marketed by EEA AIFMs in the UK, via the marketing passport, before Brexit day.
  • AIFMs will have to make requests to the FCA before Brexit day for  temporary permission to market the relevant AIF in the UK. They must do this through its “Connect” system before the end of 11 April. An AIFM will then be able to market its AIF as it currently does.
  • The temporary permission regime will be in place for a maximum of three years.
  • EEA and UK AIFMS who will be marketing AIFs in the UK after Brexit for the first time must use the UK’s national private placement regime (“NPPR”).
  • UK AIFMs will continue to report information to the FCA on their UK and EU AIFs.

If you have questions about your AIFMD requirements, please contact us at sales@aqmetrics.com .


Blog

Meet the Team: Anthony Slowey

At AQMetrics we have a highly skilled, experienced and diverse workforce with wide ranging backgrounds. Today, we introduce you to Anthony Slowey.

 

 

 

Name: Anthony Slowey, Global Regulatory Reporting Analyst

Describe your job in three words: Innovative, fast-paced and collaborative

What is the most exciting thing you are working on? I’ve enjoyed working with the product team on the risk solution, whether it is adding new stress tests, or incorporating new prospectus rules. It allows me to work cross-functionally in AQMetrics from insight into data model design through to the user experience in the front-end application.

How has your background helped with your role in AQMetrics? I was working in a regulatory reporting function in Deutsche Bank (now part of Apex), when I first came across AQMetrics. I had started my regulatory reporting career in Deutsche Bank, working in a great team, doing all the reporting calculations manually. Starting from first principles is a fantastic way to get a strong understanding of the logic required for each regulation and how to report individual firms accurately.

Best thing about working in AQMetrics? The ownership and responsibility of your own work. Unlike the bigger companies where you can feel like a cog in the machine, the fast-paced nature of AQMetrics creates an environment whereby each individual takes ownership of their work and is in control of the outcome. Also the 20 minute commute from Dublin helps!

Who would you most like to swap places with for the day and why? John Delaney – I would like to know the truth about the bridging loan!

What was the last book you read? Thinking, Fast and Slow by Daniel Kahneman

What websites do you visit the most? I am a big fan of Twitter. You will always find someone who agrees with your opinion!

Tell us something about yourself we don’t know. I used to study engineering and also worked in Scotland as an engineer. However, I wanted something more exciting so I got into risk monitoring and regulatory reporting.


Blog

CEO Message: Review of Q1

Global Growth in Q1

Throughout Q1 2019 we at AQMetrics kept a singular focus on exceptional customer experience. This has lead to of a number of large UK hedge funds signing up for the AQMetrics experience.  Leading global fund administrators such as Apex Fund Services (Group) Ltd. decided that AQMetrics was their platform of choice in their quest for a multi-jurisdictional, robust, secure and scalable solution.  The adoption of AQMetrics spread into another continent last month when Sanlam Group a leader in wealth creation and insurance in Africa adopted AQMetrics.

Harnessing data value for clients

In Q1 we sharpened our focus on a unique customer journey to ensure that our customers harness the true value of their data assets. Our data visualisation dashboards, configurable rules engine, workflow and reports are continually being extended to ensure that our customers intelligently make use of their data in AQMetrics’ robust and secure cloud based platform.

Quantamental Risk Solution

In February, at TSAM London, I announced the combination of our qualitative solutions with our quantitative risk analytics and rules engine to create the first quantamental regulatory risk solution in the market. There was immediate resounding interest and I quickly learnt that a strategically defined, technologically advanced solution allowing for the capture of human fundamental analysis combined with the quantitative view of the machine is what the market had been searching for. Many people in the alternative funds industry told me immediately after my speech that they have been trying for years to find the solution. It is amazing, in 2019,  that people are struggling in their risk management roles to such a degree that they must create their own spreadsheets to marry their qualitative risk views with quant outputs from a myriad of systems. It is the AQMetrics aim to alleviate that market issue and create better experiences of all risk management professionals in the industry we serve.

Post Brexit

We remain committed to our London office and clients irrespective of Brexit outcomes. In Q1 2019 we applied for and received deemed authorization from the FCA to continue serving the UK market as an FCA approved data reporting service provider post Brexit. This means that post Brexit AQMetrics will be regulated by not one but two regulators, the Central Bank of Ireland (CBI) and the UK’s Financial Conduct Authority (FCA).

As a result of Brexit, Financial Services firms have significantly invested in growing operations in Ireland and across Central Europe. With over 50% of AQMetrics revenue coming from clients based in the United States, and their increased attention towards Central Europe, AQMetrics now plans to open a Paris office this quarter. Further to our U.S. based clients, we now work with a number of French financial institutions and have decided to commit to the region so that our people are close to the ever growing number of Parisian based industry leaders who trust AQMetrics.

In summary, as more industry leaders trust and adopt AQMetrics for their regulatory risk management needs, our singular focus on exceptional customer experience continues to drive us to scale globally and invest further into product development much to the delight of our existing clients. Q1 has been a strong quarter for AQMetrics and we look forward to continued mass adoption throughout 2019 and beyond.  


Blog

Due date for entrance to temporary permissions regime extended to 11 April- FCA Statement

Policy Statement PS19/5 sets out the rules for firms and operators, depositories and trustees of EEA-domiciled funds in the temporary permissions regime. The temporary permission regime provides a backstop that allows firms and investment funds to continue passporting without disruption. For a limited time after Brexit day, inbound firms will be able to continue operations while they seek complete UK authorisation.

Right now the deadline for firms and funds wishing to enter the temporary permission regime is 29 March, today. As a result of the delay to Brexit, the FCA have decided to extend the notification window for the temporary permissions regime until the 11 April 2019.

Fund managers who wish to update their notification must email recognisedcis@fca.org.uk by the end of 2 April 2019 with their FRN.

The FCA will release further information, including the Directions giving effect to this extension, soon.

 


Blog, Press

Sanlam Asset Management selects AQMetrics to provide AIFMD Annex IV regulatory reporting.

IRELAND, Dublin, March 26, 2019 – Sanlam Asset Management (Ireland) Limited (SAMI) has selected award winning AQMetrics to provide AIFMD Annex IV regulatory reporting for its funds.

Sanlam will utilise AQMetrics software technology to automate Annex IV reporting, having deemed the AQMetrics platform the most scalable and robust technology best suited to fit the firm’s requirements as the regulatory landscape evolves. Sanlam is beginning a digital overhaul for the firm’s operations and are pleased AQMetrics will deliver a seamless, time-saving technology platform.

CEO of AQMetrics Geraldine Gibson stated “We are delighted to welcome Sanlam to our ever growing client base. We have the ability to quickly onboard even the largest portfolios and provide a dedicated customer success team to manage the process. We have the best solution to meet Sanlam’s requirements for functionality, transparency and cost-effectiveness. Regulation is constantly changing for asset management, but with AQMetrics platform, our clients will always be compliant for both today’s and emerging regulations.

Commenting on the partnership Dale Bucknell, Head of Operations at Sanlam, stated “Sanlam is embarking on a journey of digital transformation, this process will be driven by in house development of technology solutions, where appropriate, and by partnering with high quality service providers such as AQMetrics where it makes more sense to do so. We very much look forward to working with AQMetrics over the coming months and years.”

About AQMetrics

AQMetrics, established in Ireland in 2012 is one of the world’s leading regulatory technology (“RegTech”) providers. Since inception AQMetrics has continually improved and evolved its technology offering and offers a full risk management and regulatory reporting platform to its clients: from $bn hedge funds, alternative investment managers, MiFID firms, asset servicing providers, fund administrators to banks. Award winning AQMetrics now provides RegTech solutions to a number of the top global fund administrators and asset servicing providers in addition to directly servicing fund managers who require direct access to multi-jurisdictional regulatory reporting technology.

www.aqmetrics.com

About Sanlam Asset Management (Ireland) Limited

Sanlam Asset Management (Ireland) Limited (SAMI) was established in June 1997 in Dublin, Ireland. SAMI currently manages in excess of $8bn for clients world-wide. Clients include various large institutions and retail clients from South Africa, United Kingdom and other jurisdictions. They offer institutional and third party fund solutions and fund hosting capabilities, along with a wide range of funds for both institutional and retail investors in a range of international markets. All their funds on offer to retail investors in South Africa are FSCA approved.

SAMI is part of the Sanlam Group of companies

https://www.sanlam.com/ireland


Blog

FCA and ESMA statements on shares trading obligations under a no-deal Brexit (STOs and Article 23 of MiFIR)

In the interests of avoiding uncertainty with market participants, ESMA released a statement on the 19th March regarding the trading obligation for shares (under Article 23 of MiFID) in the event of a no-deal Brexit.

Under Article 23 investment firms must conclude transactions in shares admitted to trading on a regulated market (RM) or traded on an EU trading venue on:

(i) RMs,

(ii) multilateral trading facilities,

(iii) systematic internalisers or

(iv) third-country trading venues assessed as equivalent by the EC.

But the requirement is not applicable to transactions in shares which are traded in the EU on a non-systematic, ad-hoc, irregular and infrequent basis.

The guidance published on 13 November 2017, stated that the commission was preparing “equivalence decisions for the non-EU jurisdictions whose shares are traded systematically and frequently in the EU” but at the time had “no evidence that the EU trading in shares admitted to trading in that third country’s regulated markets can be considered as systematic, regular and frequent”.  However, this guidance did not account for a possible no-deal Brexit . Since there is significant trading between the EU and the UK, these trades cannot be considered to be traded on a “non-systematic, ad-hoc, irregular and infrequent basis in the EU27 and are therefore out of the scope of the trading obligation.”

Under a no-deal Brexit ESMA will assume the following: 1

  • EU27 shares are deemed to have their main pool of liquidity in the EU27 and are therefore traded in a systematic, deliberate, regular and frequent way in the EU27;
  • GB shares are deemed to have their main pool of liquidity in the UK and are therefore traded in a non-systematic, ad-hoc, irregular and infrequent way in the EU27;
  • however, GB shares that qualify as liquid based on trading in the EU27 only, on the basis of 2018 trading volumes excluding UK data, cannot be considered to be traded in a non-systematic, ad-hoc, irregular and infrequent way in the EU27 and are subject to the EU27 trading obligation.

ESMA will be publishing a list of ISINs that are subject to the trading obligation for shares. This list is to clarify the application of the trading obligation for shares with an EU27 or GB ISIN. 

Since there is still ongoing uncertainty regarding Brexit; ESMA will review their approach at least twelve months after any no-deal Brexit date.

In a response statement from the FCA, they acknowledge the efforts of ESMA to provide clarity on STOs however they “believe that only a comprehensive and coordinated approach can provide the necessary certainty to market actors.” The FCA is concerned that firms “may be limited to trading certain shares only in either the UK or the EU or in some cases be caught by overlapping obligations” and “this has the potential to cause disruption to market participants and issuers of shares based in both the UK and the EU”.2

The FCA has urged further dialogue with ESMA on the issue in order to minimise issues over access to liquidity and client best execution.


Blog

Making Ireland more attractive to Private Equity

The Irish funds industry recently got a breakthrough in its efforts to establish Ireland as a European domicile for private equity funds as the Investment Limited Partnerships Bill 2018 will be published shortly (depending on Brexit developments) following a government approved amendment.

In September 2018 assets under management of Irish AIFs were at €627 bn, the highest in history, but only a small percent of this is allocated to the ILP structure (defined as a transparent alternative investment fund, regulated by the Central Bank of Ireland). Private equity fund managers believe that the current legislation (the Investment Limited Partnerships Act 1994) is not in line with more favourable partnership structures available in other international fund domiciles.

The Irish collective asset management vehicle (ICAV) has up to this point served PE asset managers looking to establish private equity funds in Ireland. A corporate vehicle designed specifically for Irish investment funds, is it used for both retail funds (UCITS) and AIFs. It can also accommodate many PE strategies and PE-centric features due to its flexible structuring and be treated as a tax transparent partnership for U.S. federal tax purposes. However the ICAV is not a partnership, which is the default legal form for PE funds.

With the introduction of AIFMD in 2014,  there has been pressure to establish a fit-for-purpose Irish partnership vehicle from global PE asset managers looking to establish parallel European structures or distribution to European investors via the AIFMD passport. Dialogue between the Irish funds industry, the CBI and the Irish Department of Finance has resulted in the new bill to attract more Private Equity asset managers to Ireland.

It is assumed that there will be key enhancements to the bill to include:

(i) best practice features from other jurisdictions;

(ii) clarifying the rights, obligations and status of investors, thus improving the operation of ILPs

(iii) Fully aligning ILP structure with AIFMD and other Irish fund structures,

(iv) the option to establish umbrella ILPs and

(v) the ability to migrate a partnership into and out of Ireland on a statutory basis.

Due to Brexit, the enacting of the bill may be delayed, but it is hoped that the Bill will come before the Daíl  in Q2/Q3 2019. In the event of a no-deal Brexit, the Irish Government will fast-track emergency legislation to protect Ireland from any potential economic damage, which one assumes will result in the bill becoming a top priority.  


Blog, News, Press

Apex Group Ltd selects AQMetrics to power its regulatory reporting teams

IRELAND, Dublin, March 19, 2019 – award winning RegTech AQMetrics is pleased to announce that Apex Group Ltd. (“Apex”) has selected AQMetrics as its regulatory reporting technology solution.

Apex plans to utilise AQMetrics for its ESMA, CFTC and SEC regulatory reporting requirements, having identified AQMetrics as delivering a scalable robust technology solution best suited to fit the Group’s comprehensive compliance requirements for today and into the future.

Over the past eighteen months, Apex has made a number of strategic acquisitions and is now the fifth largest fund administrator in the world. The integrated AQMetrics platform will deliver a full suite of multi-jurisdictional regulatory reporting solutions to the global Apex Group.

Geraldine Gibson, Founder and Chief Executive Officer of AQMetrics said “AQMetrics is proud to have secured a long-term relationship with Apex. AQMetrics will provide Apex with a robust, scalable and secure regulatory technology platform that can meet Apex’s regulatory reporting technology needs today and provide Apex with access to reporting technology for emerging regulations. In line with Apex’s commitment to customer service, AQMetrics will also provide an exceptional customer experience for the funds servicing teams at Apex and for their clients”.

Commenting on this development, Peter Hughes, Founder and Chief Executive Officer, Apex Group Ltd, said, “The implementation of AQMetrics is part of our ongoing commitment to continually enhancing our robust compliance and governance reporting standards. The advanced technology solutions delivered by AQMetrics further adds to our unique technology offering by leveraging the broadest range of technologies in the industry.”

About AQMetrics

AQMetrics, established in Ireland in 2012 is one of the world’s leading regulatory technology (“RegTech”) providers. Since inception AQMetrics has continually improved and evolved its technology offering and offers a full risk management and regulatory reporting platform to its clients: from $bn hedge funds, alternative investment managers, MiFID firms, asset servicing providers, fund administrators to banks. Award winning AQMetrics now provides RegTech solutions to a number of the top global fund administrators and asset servicing providers in addition to directly servicing fund managers who require direct access to multi-jurisdictional regulatory reporting technology.

www.aqmetrics.com

About Apex

The Apex Group, established in Bermuda in 2003 is one of the world’s largest fund solutions providers with $610bn in AuA and over 40 offices worldwide. The Group offers a full service solution to its clients: from fund administration, middle office, custody and depositary to corporate services and fund platforms. Apex administers the investments of some of the largest funds and institutional investors in the world.

www.apexfundservices.com

 


Blog

Central Bank of Ireland: Capital Markets Update, March 2019


Central Bank of Ireland Markets Update

The Central Bank of Ireland has issued the third markets update of 2019 on 7th March this year. The main points are below:

  • The 32nd edition of the Central Bank AIFMD Q&A has been published and clarifies that QIAIFs with UK AIFMS  (after Brexit these will become non-EU AIFMs) will become subject to the AIFMD depositary regime including the AIFMD depositary liability provisions.
  • An updated CBI Brexit FAQ (March 6th, 2019) clarified that the Multilateral Memoranda of Understanding, agreed between European securities regulators and the FCA in February, facilitates delegation or outsourcing arrangements between Irish UCITS Management Companies/AIFMs/MiFID Firms and UK entities.
  • In a notice of intention (March 7th, 2019), the CBI states that in the event of a no-deal Brexit after 30 March, UK UCITS will become UK AIFs (due to the UK becoming a 3rd country). The Central Bank will then consider if these funds fall under the category of investment fund in which UCITS and retail Investor AIFs may invest.  Under the regulation of Irish UCITS, any investment in UK AIFs must fall within the aggregate limit of 30% for investments in all AIFs. Under a no-deal Brexit the Central Bank will also consider if UK investment firms authorised under MiFID should be a category of eligible financial derivative counterparty for UCITS and retail Investors AIFs. Since there is currently no clear course on Brexit, these circumstances may change quickly.
  • CBI has written to counterparties asking for feedback on the main issues observed in the EMIR data quality work carried out by the Central Bank in 2018 (February 20th, 2019). Failure to report details of a derivative contract to a trade repository following the conclusion, modification or termination of the contract by the end of the working day is a regulation violation.
  • The Central Bank has also issued the seventh edition of the Central Bank Investment Firms Q&A  (March 7th, 2019) which states that only EEA MiFID firms can appoint tied agents and that tied agents must be persons who are established in the EEA.

With Brexit on the horizon, no doubt there will continued communications over the coming weeks. Subscribe to the AQMetrics mailing list here to keep up to date with all the new details.  


Blog

Top ten takeaways from the ALFI European Asset Management Conference 2019

By Lorraine Lyons, Business Development 

Last week the ALFI European Asset Management Conference took place in Luxembourg. The two-day event (5-6th March) was packed with keynote speakers, in-depth panel discussions and lunch time fintech presentations. It was attended by Chief Risk Officers and Chief Compliance Officers from Europe’s largest asset management firms.  

The overall theme emerging from the event was the four P’s of asset management: Product,  People, Progress, Prediction. Here are our top ten takeaways from the event.

  1. In the past year, there has been a significant growth in the funds industry with Luxembourg having 40% of all net sales of funds in Europe. Alternative funds had a robust growth period in 2018 and there was a 17% increase in private equity funds.

 

  1. Digitisation will aid emerging generations with investment in funds. This innovation is not structural, it is competitive. There is a push from investors towards Environmental, Social and Governance (ESG) investing. This will attract talent and bring millennials  on-board who are committed to changing things.

 

  1. When we talk about innovation, we must remember that the basics need to be done correctly. Firms are still running multiple systems, which can include manual processes for risk management. The efficiency of the back office, for example, is often times neglected.

 

  1. Technology is needed to give clients greater transparency and a holistic view of portfolios.

 

  1. Only 1% of young people move into financial services roles straight out of college. In order to attract the top talent who choose this industry, asset managers and regulators are competing with each other. This is another challenge to firms to preserve their legacy with the best candidates and to question why are there not more students interested in financial services?

 

  1. A pragmatic regulator who is open to constructive dialog is needed rather than a regulator that goes into technical details. If regulatory files are well prepared then filing should be straight forward for firms.  

 

  1. Achieving sustainability will not be done by trying to predict the future, but rather by proactively creating it. We do not have to choose between a thriving economy and a clean environment, we have to achieve both to appease investors and the planet.

 

  1. Climate change is here. The cost of inaction is $4.2 trillion for four degrees temperature  warming. Our planet is safe and will adapt but when we reach six degrees warming, human life is in serious danger. Only 17% of pension funds factor in climate risk in their investment strategies. On March 15 there will be a global strike from schools, organised by 14-15 year-olds who are concerned about inaction on Climate Change.   

 

  1.  ESG investments should have a single approach across the funds industry and be applied to all product not just some products.

 

  1. AI and fintech will not be used to replace humans, rather it will take the robot out of the human and move those repetitive tasks to the digital worker. There is a high amount of repetition in what we do and fintech can build rules based engines to solve for this.  

 

The event’s content showed we have an interesting few years ahead of us between the changing environment, Brexit, AI and changing investors. Success in these times will come down to catering to these risk factors with skillful innovation and a personal roadmap of compliance.


Blog

ESMA Statement : No Deal Brexit guidelines for MiFID II/MiFIR and BMR Provisions

Yesterday, the European Securities and Markets Authority (ESMA)  issued a statement on its approach to MiFID II/MiFIR and Benchmark (BMR) provisions in the event that the United Kingdom leaves the European Union on the 29th March, with no withdrawal agreement in place (no-deal Brexit).

The following aspects are assessed by ESMA under a no-deal Brexit:

  • The MiFID II C(6) carve-out

The conditions under which a derivative contract are considered eligible for exemption and is not be considered a financial instrument. Specifically ESMA assesses the carve-out provisions for wholesale energy products.

  • Trading obligation for derivatives

ESMA confirms that there is currently no evidence to suggest that market participants will not be able to continue meeting their trading obligations for derivatives on regulated markets (“RMs”), multilateral trading facilities (“MTFs”), organised trading facilities (“OTFs”) or third-country venues with equivalence.

  • ESMA opinions on post-trade transparency and position limits

In case of a no-deal Brexit, trading venues established in the UK will, following exit day, no longer be considered EU trading venues. Consequently, transactions concluded on UK trading venues would be considered OTC-transactions and would be subject to the post-trade transparency requirements.

  • Post-trade transparency for OTC transactions between EU investment firms and UK counterparties; and UK counterparties.

Under a no-deal Brexit, UK investment firms will be considered third-county counterparties. Therefore, any OTC transaction concluded with UK counterparties must be made public by EU investment firms. This ensures that all transactions where at least one counterparty is an EU investment firm will be made post-trade transparent in the EU27.

  • BMR: ESMA register of administrators and 3rd country benchmarks.

Finally, UK administrators after a no-deal brexit will be deleted from the ESMA register. However, during the BMR transitional period, EU supervised entities can use 3rd country benchmarks even if they are not included in the ESMA register.

As there is still much uncertainty surrounding the final plans for the withdrawal and with the political situation in daily flux, ESMA warns that any position taken may be subject to further change, with subsequent communications likely to feature in the coming days and weeks.


Blog

Liquidity Stress Test Guidance for Investment Funds

New blog from AQMetrics CEO, Geraldine Gibson-Dautun 

In February 2019 the European Securities and Markets Authority (ESMA) created a draft guidance regarding liquidity stress tests of investment funds – applicable to alternative investment funds (AIFs) and Undertakings for the Collective Investment in Transferable Securities (UCITS). The draft guidance is based on the stress testing requirements set out in Directive 2011/61/EU and on the European Systemic Risk Board (ESRB) 2018 set of recommendations to address liquidity and leverage risk in investment funds (the ESRB recommendations).

The ESRB’s ‘Recommendation C’ requested that ESMA, “develop guidance on the practice to be followed by managers for the stress testing of liquidity risk for individual AIFs and UCITS”. Furthermore the ESRB recommendations set out: “The guidance issued on liquidity stress testing by ESMA should include, but not be limited to:

  • the design of liquidity stress testing scenarios;
  • the liquidity stress test policy, including internal use of liquidity stress test results;
  • considerations for the asset and liability sides of investment fund balance sheets; and
  • the timing and frequency for individual funds to conduct the liquidity stress tests.”

As a result, the ESMA guidelines reflect that redemptions are not the only potential risk to a fund’s liquidity, and that liquidity may dry up due to risks on either the assets or the liabilities side of the balance sheet, or both.

As a variety of methods can be used to build liquidity stress test models and determine the normal and stressed market conditions employed within them, ESMA recommends that managers determine:

  • which risk factors may impact the fund’s liquidity;
  • which scenarios to utilise;
  • the severity of the stress scenarios to employ;
  • different outputs and indicators to be monitored following the exercise, and how they are reported via management information; and
  • how the result of the liquidity stress test is utilised and acted upon by risk managers, portfolio management and senior management.

According to the ESMA guidelines, liquidity stress tests should be adapted appropriately to each fund, depending on its nature, scale and complexity. The liquidity stress tests should employ hypothetical and historical scenarios, and reverse stress testing. ESMA advises fund managers to not overly rely on historical data, particularly as future stresses may differ from previous ones.

Data availability features in the guidelines as ESMA notes that liquidity stress tests should demonstrate a manager is able to overcome limitations related to the availability of data, by avoiding unjustifiably optimistic assumptions and exercising qualitative judgement where appropriate. According to ESMA, managers should adapt their approach as appropriate where data is limited. This may require validation of the assumptions made, for example by discussing with market-facing agents, such as internal or external trading desks and/or brokers or utilising third party data services. In all cases ESMA notes that it should not be assumed that the portfolio can be liquidated at the full average daily traded volume of an asset unless such an assumption can be justified based on empirical evidence.

ESMA recognises that there is a myriad of different methods of modelling asset liquidation and does not advocate the use of one method over another. The first method examined in the ESMA consultation paper is the liquidation cost method. Liquidation cost depends on the following three factors: asset type, liquidation horizon and size of the trade/order. According to ESMA, managers should consider these three factors when assessing the liquidation cost of their assets, under normal and stressed market conditions:

  1. Asset type. The higher liquidity of some assets versus others (e.g. large-cap equities compared to high yield bonds)
  2. Liquidation horizon. The typically inverse relationship between liquidation cost and liquidation horizon.
  3. Trade size. A convex relationship may exist between trade size and liquidation cost, where liquidation cost decreases as trade size increases before reaching an inflexion point, and it starts increasing as trade size increases.

An alternative method to liquidation cost analysis is the time to liquidity calculation method. Instead of calculating liquidation cost, some managers construct liquidity buckets to estimate the time to liquidity for all the assets in the portfolio. With this approach, the manager can estimate the amount of assets which could be liquidated at an acceptable cost, for a given time horizon.

As financial markets typically exhibit higher volatility and lower liquidity in stressed conditions, liquidity metrics such as bid-ask spreads and price impact measures are likely to increase, in a similar way as a market volatility index (e.g. the VIX). Time to liquidate may also increase, dependent on the asset class. Managers should reflect various market stresses in the estimation of the liquidation cost and time to liquidation under such stressed conditions. In this context, ESMA guides managers to avoid only referring to historical observations of stressed markets.

According to ESMA, managers should employ historical, hypothetical scenarios as well as reverse stress testing.

ESMA lists the following historical scenarios by way of example:

  • internet/dotcom crisis 2000/2001
  • terrorist attacks of 2001(9/11)
  • global financial crisis 2008/10
  • European debt crisis 2010/12

The following hypothetical scenarios are also listed:

  • material increase of interest rates
  • widening of credit spreads
  • increased market volatility
  • significant political events
  • sector or firm specific events
  • natural disasters

On reverse stress testing ESMA notes that it consists of a fund-level stress test which starts from the identification of the pre-defined outcome with regards to fund liquidity and then explores scenarios and circumstances that might cause this to occur. As part of reverse stress testing ESMA guides that due regard should be given to how assets would be liquidated during market stress, including the role of transaction costs and whether or not material discounts (fire sale prices) would be accepted.

The above concerns the asset side of the balance sheet, ESMA further explores the liabilities side and pays particular attention to redemptions under stressed conditions. To build up a picture of what is normal for the fund over time ESMA guides that managers could monitor the historical outflows (average and trends across times), average redemptions of peer funds and information from any distribution network regarding forecast redemptions and recommends that managers should ensure that the time series is long enough to fairly reflect ‘normal’ conditions.

In stressed conditions ESMA provides the following example scenarios:

  • Historical trends – scenarios based on historical redemptions trends (specific to the fund). A period of redemptions which is stressed compared to historical data.
  • Historical events – redemptions during a stressed scenario, such as the Global Financial Crisis or the 9/11 terrorist attacks.  
  • Contemporary market trends in peer funds – during stressed market conditions peer funds may be experiencing high net redemptions. Equivalent stressed outflows could be simulated in the manager’s fund.
  • Hypothetical/Event-driven scenarios (such as political risk, change of portfolio manager, largest investor redemption etc) – potential effect on fund liquidity caused by an event which may cause enhanced redemptions e.g. a referendum or election result leading to changing economic conditions.
  • Reverse stress testing of redemptions – managers should start from the identification of a pre-defined outcome (e.g. the point at which the fund would no longer be able to honour redemption requests) and then explore scenarios and circumstances that might cause this to occur.

ESMA further provides guidance on factors that impact liquidity types not related to redemptions, as follows:

  • Derivatives – changes in the value of the underlying may lead to derivative margin calls, affecting the available liquidity of the fund. To stress test this a manager could simulate a large margin call due to an increase in the exposure to the underlying.
  • Committed capital – funds investing in real or immovable assets are often required to commit capital to service the investment, such as maintenance or refurbishment costs. An event causing further outlay of capital to a real estate investment could be simulated to stress test this scenario.
  • Securities Financing Transactions (SFT) – funds lending out assets are exposed to counterparty risk of the borrower and the associated liquidity risk arising from potential default. Whilst this can be mitigated by the collateral posted, liquidity risk is not eliminated (bearing in mind the liquidity of the collateral). A counterparty default scenario could be simulated to stress test this scenario.
  • Interest payments – funds which incorporate leverage into their investment strategy are subject to liquidity risk arising from factors such as interest rate sensitivity. An increased interest rate scenario could be used to stress test this.

Aggregation of liquidity stress tests across the funds under management is advised by ESMA. Using the same liquidity stress test on more than one fund with similar strategies or exposure may be useful when considering the ability of a less liquid market to absorb asset sales were they to occur concurrently in funds operated by the manager. This may be particularly pertinent when funds operated by the manager own a material level of assets in a given market. Aggregation of stress tests may allow the manager to better ascertain the liquidation cost or time to liquidity of each security, by considering the trade size, stressed market conditions and counterparty risk.

ESMA recommends quarterly stress testing, unless the size and nature of the fund requires more frequent stress testing. ESMA recommends that managers incorporate risk scoring into their stress test programmes. The impact of investor behaviour on liquidity stress tests is somewhat questioned by ESMA. However, investor behaviour could form part of the risk scoring where applicable.

Lastly, the importance of independent stress testing is highlighted by ESMA.  ESMA cautions that particular attention should be paid to the independence requirement when the manager delegates portfolio management tasks to a third party,  in order to avoid reliance on or influence of the portfolio manager / investment adviser’s own stress tests. Independent stress testing ensures strong compliance as opposed to assumed compliance by third parties. 


Blog, Buzz

Meet the Team -Lorraine Lyons

At AQMetrics we have a highly skilled, experienced and diverse workforce with wide ranging backgrounds. Today, we introduce you to Lorraine Lyons, Business Development.

 

 

 

Name:

Lorraine Lyons, Business Development

Describe your job in three words:

Motivating, Collaborative, Engaging.

What is the most exciting thing you are working on?

The most exciting part about my job is working with new customers. I am currently working with several large clients who will use AQMetrics platform to aid their customers to scale using our risk and regulatory reporting solutions.

How has your background helped with your role in AQMetrics?

My BA in English and Sociology and Masters in IT from Maynooth University and more recently my H. Dip Financial Technology from Dublin Business School, all contributes to my core values of lifelong learning and working in partnership. The opportunity to undertake group work with peers is invaluable learning.

Best thing about working in AQMetrics?

Everyone shares the same vision and is dedicated to the mission.

Who would you most like to swap places with for the day and why?

Janet Guthrie – retired professional race car driver. As she once said, racing is a matter of spirit not strength.

Last book you read?

I’ve just finished my H. Dip in DBS, so the last year was spent reading academic journals. However, the last book I read for fun was ‘I am Pilgrim’ by Terry Hayes – I love a good thriller.

Website you visit the most?

Travel websites – all of them! I spend a lot of time planning my next trip.

Tell us something we don’t know about you.

I am a qualified women’s artistic gymnastics (WAG) coach and national judge. I got to spend time training with an Irish squad in Russia and coached in Ireland and Australia. As I wanted to stay involved in gymnastics, I volunteer with Special Olympics Ireland to help organising their regional and national competitions.


Blog

Applying artificial intelligence to hedge funds- Special report in HFM

In a special report for HFM, Geraldine Gibson-Dautun, CEO, AQMetrics, considers the future of artificial intelligence for hedge funds.

Download the report by filling in the below.

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Blog, Press

AQMetrics recognised for MiFID II Transaction reporting excellence


AQMetrics is delighted to have been nominated for the 2019 HFM European Hedge Fund Services Awards in the following categories:

  • Best MiFID II solution – trade and transaction reporting
  • Best Regtech solution
  • Best use of cloud technology

HFM European Hedge Fund Services Awards are annual recognition for hedge fund service providers that have exceptional customer service and innovative product development over the past 12 months. AQMetrics is the previous winner of HFM European Hedge Fund Services award for Best Regtech Solution in 2018  and Best Compliance Product for Small and Start Up Firms in 2016.

The 2019 nominations are testament to AQMetrics’ growth and  product innovation for MiFID II over the last two years. AQMetrics is authorised as an ARM (Approved Reporting Mechanism) by the Central Bank of Ireland, and passports its MiFID II transaction reporting services throughout the EEA. AQMetrics is also seeking authorisation with the FCA to ensure our customers with UK branches have continuous reporting in the EEA and the UK following Brexit.

By leveraging AQMetrics advanced technology and extensive understanding of the regional and global regulatory landscape, financial firms throughout Europe can be better prepared for regulatory changes as and when they happen. AQMetrics delivers a consolidated platform for risk and compliance, with seamless data management and cross-regulatory data insights.

Commenting on the award nominations, Geraldine Gibson-Dautun, CEO of  AQMetrics stated, “We are proud to once again be recognised as a global leader in the RegTech space. The decision to become a regulated RegTech and our subsequent 2018 authorisation as a Data Reporting Service Provider under MiFID II has firmly placed AQMetrics integrated platform as a ‘One Stop’ for our global client base. Our customers speak for themselves when they identify AQMetrics as their chosen solution across the myriad of cross jurisdictional regulations that they have to comply with.”

Claire Savage, COO of AQMetrics added, “AQMetrics demonstrates excellence and differentiates itself from competitors not only with its comprehensive MiFID II functionality, but also through its experienced staff, its collaborative approach, its dedicated customer success team, its robust technology, and its deep legacy system integration skills. This serves as proof of our MiFID II innovation and recognition of our positive client experience, we are honoured to be recognised by HFM again”.   


Blog, Buzz

Meet the Team- Colm Mathews

At AQMetrics we have a highly skilled, experienced and diverse workforce with wide ranging backgrounds. Today, we introduce you to our Graduate Software Engineer, Colm Mathews.

 

 

Name:

Colm Mathews, Graduate Software Engineer.

Describe your job in three words:

Extract, Transform, Load.

What is the most exciting thing you are working on?

Abstract representation and optimization of business rules.

How has your background helped with your role in AQMetrics?

My background in theoretical physics and mathematics helps me approach problems in a quantitative and structured way.

Best thing about working in AQMetrics?

The friendly and helpful colleagues.

Who would you most like to swap places with for the day and why?

Jeff Bezos. I’d like to transfer a fair amount of his money into my bank account before the day ends :)

Last book you read?

Cosmos by Carl Sagan.

Website you visit the most?

Youtube – lots of informative topics and videos created by passionate people.

Tell us something we don’t know about you.

I took part in a Strictly Come Dancing fundraiser for my local football club.


Blog, Buzz

AQMetrics attends annual Funds Congress

AQMetrics’ CEO Geraldine Gibson-Dautun will be attending the 8th annual Funds Congress on Thursday, the biggest central London-based asset management conference , on 7 February 2019 at the QEII Conference Centre, Westminster in London.

Lorraine Lyons, Business Development, will also be in attendance. If you would like to meet with AQMetrics to discuss how we can assist your firm, please email sales@aqmetrics.com.

To register for the event and learn more click here.


Blog

FCA publishes MiFID II guidelines for hard Brexit


The FCA has published their expectations for firms, trading venues and ARMs under the MiFID II Transaction Reporting regime, in the event of a hard Brexit.

Four points to take note of:

  1. FCA FIRDS will replace ESMA FIRDS, this will be fed with live production data from early March, with the goal of being fully operational by the end of March. Test access will be available to connected firms and authorised ARMs from 21 February 2019. Interestingly, FCA FIRDS will use Amazon’s elastic search engine, which should yield better results than the existing ESMA form-based search capability.
  2. Should a hard-Brexit occur on Friday 29 March 2019, there will be an immediate switch-over to UK FIRDS on the subsequent weekend, with the aim of being live on 1 April 2019. Should an implementation period be agreed, then it is more likely that a phased migration to UK FIRDS will occur.
  3. UK trading venues will need to prepare to transaction report for transactions on their venues by their EEA members (who are not operating through a UK branch), who report to their home state within the EEA and who will become 3rd country firms as regards the UK after 29 March 2019.
  4. EEA firms, who operate through a UK branch, will now need to prepare to submit transaction reports to the UK, either by directly authorising with the FCA MDP, or by contracting with an ARM that is authorised to do so. This may involve changing ARM, if the ARM has not elected to participate in the FCA’s temporary authorisation regime.

While the prospect of a hard Brexit is daunting for EEA firms operating a UK branch, the FCA has stated that no enforcement will be taken against firms who are not immediately compliant with the new requirements. Naturally, all impacted firms must demonstrate that reasonable steps have been taken to prepare to meet the new obligations by 29 March 2019.


Blog, Buzz

Meet the Team – Cathal Connolly

At AQMetrics we have a highly skilled, experienced and diverse workforce with wide ranging backgrounds. Today, we introduce you to our Head of Global Regulatory Reporting, Cathal Connolly.

 

 

Name:

Cathal Connolly, Head of Global Regulatory Reporting 

Describe your job in three words:

Challenging, Changing, Interesting

What is the most exciting thing you are working on?

Currently, I am working on the live AIFMD filings for our customers.  We are constantly investigating new regulations to keep up to date with the needs of customers and the demands of regulators. As we provide a consolidated platform for risk and regulatory compliance, I am working with customers to onboard automated risk services.

How has your background helped with your role in AQMetrics?

My background in accounting and fund administration has provided me with the knowledge needed for my role here in AQMetrics as Head of Global Regulatory Reporting. I have worked on numerous different fund types from completion of NAVs to pricing verification of portfolios. This experience has helped me understand our client’s models and their portfolio for regulatory compliance.

I have worked in some of the world’s largest administrators, setting up their regulatory reporting function and ensuring their regulatory knowledge was compliant. My team has a similar background to myself, and together we embed the funds knowledge into AQMetrics’ automated platform. The firms we work with are assured that the team here truly understand their requirements.

Best thing about working in AQMetrics?

The ability to build and deliver an amazing product and application to our customers and industry. Working so closely with our engineering team means I can see the deep domain knowledge of the customer success’ team being automated into the platform.

Who would you most like to swap places with for the day and why?

Joe Schmidt – he is a genius, and somehow manages to stay humble and down to earth.

Last book you read?

The Test – Brian O’Driscoll autobiography, with a young family I don’t have much time to read.

Website you visit the most?

Sky Sports – I like to keep up to speed with the sports news.

Tell us something we don’t know about you.

I have been very fortunate to have travelled the world playing rugby, and have visited some countries that I would have never had the opportunity to visit otherwise.