Annex IV - The next chapter in AIFMD

September 11,
CORDIUM POWERPOINT MASTER 1
2014

ANNEX IV –
THE NEXT CHAPTER
IN AIFMD
Thursday 11th September 2014
2

Agenda
o Annex IV, an overview - Bobby Johal, Managing
Consultant - Technical, Cordium
o Cloud based reporting solution - Gurvinder Singh,
Co-Founder and CEO, Indus Valley Partners
o Helpful tips on Annex IV reporting - Fiona Bisset,
Alternative Investment Team Manager, FCA
o Q & A
3

OVERVIEW OF OBLIGATIONS AND
REQUIREMENTS
4
Bobby Johal
Managing Consultant,
Technical
Cordium

Annex IV – a recap
o What is Annex IV reporting?
o Who has to file?
o When and how often do I file?
o Who do I report to and how?
o What information is required?
o What are the challenges?
o What are your options?
5

What is Annex IV?
o Annex IV: periodic systemic risk reporting obligation
under Art. 24 of the AIFMD
o AIFMs required to file in respect of themselves and
the AIFs they manage or market into the EU/EEA
o Comprehensive report
o 38 questions of the AIFM
o over 300 questions for each AIF
6

Who has to file?
o Any AIFM managing and/or marketing an AIF in the
EU/EEA
o Full Scope UK AIFM with EU managed AIFs and
EU/non-EU marketed AIFs = Art. 24(1),(2),(4)
o Non EU AIFM without passport for each EU
marketed AIF = Art. 24(1),(2),(4)
o Small Authorised AIFM = Art. 3(3)(d), 24(2),(4)
o Registered AIFM = Art. 3(3)(d)
7

When and how often do I file?
o Annex IV report has to be filed within 30 calendar
days of the reporting date
o fund of funds have a further 15 days.
o Reporting dates: 31 March, 30 June, 30 September
and 31 December
o Reporting can be quarterly, half yearly or annually
o Frequency depends on:
o the size (AuM) of the AIFM and AIF
o use of leverage; and
o the type of investments made
8

Annex IV Reporting - Frequency
9
AUM (€)
Reporting Frequency
(on a calendar basis)
100m / 500m (unleveraged) – 1bn Six-monthly
>1bn Quarterly
Any single AIF with AUM > 500m Quarterly
PE & Venture Capital Firms Annually
Small Authorised & Registered AIFMs Annually

Who do I report to and how?
o EU AIFM will report to its National Competent
Authority (“NCA”) e.g. UK – FCA
o Non EU AIFMS marketing AIFs into the EU/EEA file
separate reports to NCAs for each jurisdiction they
market AIFs into
o The FCA requires Annex IV reporting to be in XML
v1.1 from October 2014
o FCA Annex IV reports will be scheduled on GABRIEL
10

What information is required? (1)
ESMA template sheet 1 - Art 3(3)(d) / Art 24(1)
o AIFM specific information
o 38 questions
o Static data in respect of the AIFM
o 27 questions can be pre-populated
o 11 further questions – cut off dependent
o 5 principal markets and instruments they trade on behalf
of the AIFs they manage
o total assets under management
11

ESMA template sheet 2 - Art 3(3)(d) / Art 24(1)
o AIF specific information
o 120 questions
o 47 questions pre-populated
o Approximately 60% cut off dependent
o Questions that require attention
o 5 main instruments AIF trades
o 10 principal AIF exposures
o 5 most important portfolio concentrations
12

ESMA template sheet 3 - Art 24(2)
o Additional AIF specific information
o NOT required for small registered AIFMs or
o Non-EEA AIFs not marketed in EEA by auth’d AIFM
o Some fields can be pre-populated
o Reporting requires significant amounts of data
o 175 questions, some optional depending on AIF
o exposures at reporting date
o turnover of each asset class
o risk reporting: market, counterparty, liquidity, financing
o investor profile
13

ESMA template sheet 4 - Art 24(4)
o Leveraged AIFs additionally report per ESMA
template sheet 4/Art 24(4)
o overall leverage employed
o breakdown of leverage arising from borrowing cash or securities
or embedded in derivatives
o extent to which the fund assets have been reused
(collateralised) under leveraged arrangements
o identity of the 5 largest sources of borrowed cash or
securities for the fund and the leverage attached to them
14

Guidance (1)
Key sources:
o ESMA – Guidelines (08.08.2014 / ESMA/2014/869EN)
o ESMA AIFMD Q&A July 2014 (ESMA/2014/868)
o FCA – AIFMD Reporting
o Non EU AIFM – EU or Non-EU AIF – report to each NCA where AIF is marketed.
o Reporting to NCA deemed to be ‘those of the member states where the AIFs are
marketed’.
o Multiple AIFs - Reporting under Art. 42, only the AIFs marketed in that Member State
have to be reported to local NCA
o Non-EU AIFMs - Master funds not marketed. Report on feeder funds only?
o No. Report on Master also. Tab 24(2)&(4)
o Whilst, only the Feeder is being marketed, information is also required to be provided as
per the ESMA opinion and as adopted in FCA rules.
o ESMA opinion/2013/1340/paras 11-12. FCA handbook: FUND 3.4.6AR(2)
15

Guidance (2)
o Procedures when the AIFM of an AIF changes or an AIF is liquidated
o Change of AIFM – new AIFM should report at the next reporting period
covering the whole period based on information provided by the former AIFM.
o Liquidated or merged AIF - AIFMs should provide the last report of the AIF to
their NCA immediately after the AIF has been liquidated or merged.
o Nil return
o E.g. New AIFs yet to raise capital should still submit nil return
o New reporting obligation / shift in cycle:
o Numerous scenarios detailed in Sec IX of the ESMA Guidelines. – Very much
depends upon timing of change
16

Guidance (3)
o AUM methodology – Gross, as per Art.2.3 of the Regulation
o Total value of all exposure lists in the Article 24(2) tab – gross values in lines
122-124/ i.e. the total of the individual exposures = AUM
o Does VAR need to be reported?
o A. FUND 3.4.6AR(C) – reported only where VAR is already calculated.
o -Originally suggested as a requirement in an FCA quarterly CP but new FUND
3.4.6AR provision revised that
Automated Validation checks from October 2014- ‘business validations’ yet to be
published.
17

What are the challenges?
o Marshalling the data
o identifying the sources of data
o extracting the data required
o collecting and normalising
o validation and converting it into a reporting format
o Represents a significant operational challenge
o this has to become part of the AIFMs BAU
o time constraints
o Problems exacerbated if the AIFM has multiple service providers
o Consistency across
o period to period reports
o all forms of regulatory reporting
o Ability to demonstrate a clear audit trail and rationale
18

What are your options?
19
Manual
Completion
of
spreadsheet
Cloud
based IT
solution
Installed
software
In-house
built
solution
Fund
Administrator

Annex IV reporting roadmap
20
Choose
reporting
solution
Decision making
and set-up
Map data to
reporting solution
and determine how
to fill any gaps
Formally sign-off
reporting
Dry run on
September
data
Report
Confirm
reporting
obligation
Understand your
data and how it
will be reported
Establish reporting
team.
Internal/external
parties
Complete return –
ensuring all data is
properly reported
File with FCA via
Gabriel

IVP RAPTOR - Your platform for
Global Regulatory Reporting

Who we are?
• IVP is a boutique services and solutions firm focused exclusively on Alternative Investment
Managers
– Founded in 2000 and currently 380+ employees
– Offices in New York, Salt Lake City, London, New Delhi, Mumbai
– Blue-chip, global client base encompassing all major trading strategies
• Proven understanding of Hedge Fund technology and operational infrastructures
• 20 of the top 50 hedge funds globally are/have been IVP clients
• 80+ funds manage $725Bn+ of Global Hedge Fund AuM using IVP Technology
• IVP Solutions division (140+ engineers) focused on innovative post-trade solutions
• IVP RAPTOR last quarter RAuM filed: $375Bn+
• IVP Clients already using Raptor to do Form PF, CPO/PQR/NFA, 13F/D/G, Annex IV, EU SSR,
EMIR, OPERA.. more coming
22

Current Regulatory Environment

Data challenges
• Clients and regulators around the world all want data
• Data specifications vary and are inconsistent
• You will need to understand the differences
• You need to be able to explain your data
• You need to be in control – ultimately you are responsible
24

Core Data Sets – Automate to reduce your operational
burden
Data Set Possible Source(s) Automation
Possible?
Exposure Portfolio Management System/Risk
Datawarehouse
Yes
Borrowing/Cash/Collateral
/AUM
Inhouse Accounting/Fund Admin Partial
Security Reference Data Portfolio Management System/Risk
Datawarehouse
Yes
Performance Data Portfolio Management System Yes
Investor Data Fund Administrator Partial
Risk Data Risk Datawarehouse/Service Yes
Transaction Data Portfolio Management System Yes
25

Your Roadmap to Annex IV reporting α

Lessons from our Form PF experiences
• IVP had 10 first filers as clients in
the first wave of filings in August,
2012
• It takes time!!
– To figure out roles / responsibilities /
divide the questions
– Interpretation issues due to asset mix
– Identifying “golden” data sources for
key data sets
– Conducting a mock
– Implementing controls to “keep”
supporting backup
• Key derivations from our Form PF
experiences
– Average IVP client took 4-10 weeks for
first filing depending on the asset
complexity
– Relied on advisory from either a
counsel or compliance consulting firm
for at least 3-5 questions
– Spent fair amount of time identifying
clean data sources for the 7 core
datasets
– Outsourcing to fund admins does not
shift responsibility… some realized
later and switched back
27

Benefits of an integrated compliance solution
• Confidence that the solution can evolve with your needs
• Ability to provide data to ad-hoc regulatory requests
• Basis for data used for marketing
• Full audit trails and sign offs
• Lower risk consistent quality
28

Challenges we see in Annex IV
• Challenges
– Large amount of data at AIF and
AIFM level that multiplies
exponentially as funds increase
– Reporting formats for each
jurisdiction are evolving to be
different
– Commitment vs. Gross method for
derivative exposure calculations
– Region wise split of NAVs
– Risk reporting open
– Hedging/Netting rules flexible
• Our Recommendations
– Start early
– Identify all core areas of ambiguity
and seek advise
– Identify golden data sources for
your key data sets
– Define controls / procedures /
ownerships for data flows
– Automate as much as possible (if
not right away but over next 12
months)
– Conduct a mock
– Use systematic way of
approaching the problem set to
enable consistency
29

Spreadsheet vs. Integrated Compliance Platform
• Manual (“spreadsheet”)
approach
– Voluminous amount of data
• single master + 2 feeders will
require answering 940 questions!!!
– No Audit trail of changes
– Need to devise a mechanism to
store “supporting/backup
documents” for any possible
regulatory scrutiny
– Data quality/consistency issue
• if you change one extract.. You
need to recheck all questions
• Integrated compliance platform
– Automation eases the data
collection, normalization and
population process
– Workflow and audit trail ensure
checks and balances are in place
– All backup stored/preserved with
each filing for any regulatory
scrutiny
– Platform evolves as your needs
do
30

Tips on AIFMD Annex IV reporting
Fiona Bisset, Manager, Financial Conduct Authority
31

Annex IV Reporting - Overview
• Annex IV Reporting – scope
• The role of the FCA
• The role of the firm – understanding
• What to report
• When to report
• How to report
• Why they have to report
32

GABRIEL Reporting
• GABRIEL updated with new reporting functionality
• Go live date and access for firms
• Testing facilities
• What firms need to do
• XML V1.1
• Data validation rules
• Where to go for more information
33

Reporting timelines
• GABRIEL reporting window
• Missed reporting deadlines
• Transparency data - quality assurance
• Disclosure to ESMA
• Transparency data - analysis
• Using data to inform supervision strategy and discharge
responsibility as the UK competent authority
34

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