The AWM Monthly Briefing - 22 November 2018 - Highlights of the Day

10 minutes

Hot topic of the month: "AWM Revolution: Pressure on Profitability"

In the AWM industry, price competition and innovation are fierce, and investors and regulators constantly demand lower fees.

Although the Global AuM is anticipated to grow (from $84.9T in 2016, $111.2T in 2020 to $145.4T by 2025), fee pressure is causing the Revenue/AuM ratio to drop. It was down 10.43% between 2012 to 2017. The prediction is that it will fall further, from 0.40% in 2017 to 0.31% in 2025.

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By 2025, investors will know where every cent of management fees has been spent and what value it is providing them.

Panel Discussion - Beyond the core; Challenges and solutions for the increasing burden of Regulatory, Investor and Fund Reporting

  • Peter Carroll - Head of Invesco Management, Luxembourg
  • Steve Bernat - CEO, Carne Global Fund Managers, Luxembourg
  • Susanne Schartz - COO, Seqvoia
  • Paul Ellis - Global Head Regulatory Product, HSBC Securities Services

Core asset management functions are to maximise portfolio performance, and to gather new clients. However, given increasing regulatory requirements and stringent deadlines, asset managers have to dedicate more time for non-core, fund investor and regulatory reporting tasks.

When asked about handling the reporting burden, nearly 80% of the attendees (primarily asset managers and some asset servicing professionals) preferred outsourcing to building the capability in-house.

Whereas it may be more efficient to outsource the reporting function, particularly for smaller companies lacking scale, one size does not fit all. Clients are fragmented, even geographically, and have different needs. Two thirds of those voting for the outsourcing preference, would outsource initially on a fragmented basis to the best of breed provider than entirely to a one-stop shop.

Selecting an outsource partner is a matter of judgement and trust. Even with outsourced work, AMs have legislated obligations around data protection and usage. Data requires careful custodianship. It has a multiplicity of formats, sources and providers. For reporting purposes, it has to be consolidated, checked for consistency, compliance and customised for dissemination; possibly across multiple channels, in multiple languages.

In terms of future business models, if the industry were to take a utility approach to reporting, the service would have to come from credible, scalable providers. Like the Big-4, the providers would need to understand the technology, the overall business, and be able to provide the necessary assurance that deliverables remain compliant and future-proofed.

There is an opportunity for the asset management industry to use its scale. By relying on consolidated and centralised solutions to common reporting obligations, the industry could take out swathes of non-core costs, and result in a more harmonised and consistent approach.

Workshops

We dedicated our workshops session to the last Circular 18/698 focusing on different key aspects:
  • AML & Due Diligence
  • Internal Audit and Risk Management
  • Governance & Substance
  • Delegation & Compliance

Check out the conclusions

Monthly Update

Tax update: Focus on ATAD

  • As a reminder, the EU Anti Tax Avoidance Directive (“ATAD 1”) was published in July 2016. EU Member States have until 31 December 2018 to transpose ATAD 1 into their domestic laws.
  • Amendments to this draft law have now been released in order to cope with the modifications that were absolutely required by the State Council.
  • This draft law still needs to go through the Luxembourg legislative process, and may be subject (although not expected) to further amendments before the final vote by the Luxembourg Parliament.

Tax update: Focus on German Tax Reform

  • Under the German Investment Tax Act 2018, the impact of the main draft amendment to the partial tax exemption status, which relates to the change of the calculation methodology of the equity ratio for UCITS funds (with retroactive effects), should be carefully assessed;
  • As a reminder, the deadline for the mandatory prospectus update to reflect the partial tax exemption status (i.e. equity/mixed/other sub-funds) is set on 31 December 2018;
  • With regard to the calculation and publication of the "new lump sum" amount, there is a key decision to make between reliance on the calculations done by providers of financial information in Germany with access to "WM Datenservice" or reliance on independent calculations; and
  • Funds are invited to perform a final "sanity check" on paid withholding tax ("WHT") and file tax reclaim for WHT overpaid (if any).

Regulatory Update

  • There are two ongoing ESMA consultations regarding the MMF Regulation: the first one concerns draft guidelines on stress test scenarios (until 1 December 2018); the second one relates to draft guidelines on the reporting to competent authorities under Article 37 (until 14 February 2019). With regard to the use of reverse distribution mechanism (often referred as "share cancellation"), the European Commission recently confirmed the view that this mechanism is not compatible with the MMF Regulation, which would de facto ban CNAV MMF in a negative yield environment in Europe;
  • The International Organization of Securities Commissions ("IOSCO") consults on a two-step framework to help measure leverage used by investment funds until 1 February 2019;
  • Based on recent speeches, the European Commission would support the idea of postponing the introduction of the PRIIPs KID regime for UCITS funds by two years until 2022. Meanwhile, the European Supervisory Authorities ("ESAs") invite comments on targeted amendments to the Delegated Regulation 2017/653 on PRIIPs KID until 6 December 2018;
  • Noteworthy is that two Commission Delegated Regulations on safekeeping duties of depositaries, respectively for UCITS and AIFs, will apply from 1 April 2020;
  • 3 December 2020 is the deadline for Luxembourg to transpose the Directive (EU) 2018/1673 of the European Parliament and of the Council on combating money laundering by criminal law ("6AMLD") into national legislation. Besides, in October 2018, the definitions of "virtual asset" and "virtual asset service provider" were added into the FATF Recommendations in order to clarify how AML/CFT requirements apply in the context of virtual assets;
  • With regard to Brexit, the EU27 Leaders will meet and discuss the draft Brexit withdrawal agreement and the draft political declaration setting out the framework for the future relationship between the EU and the UK on 25 November 2018.

PwC Solution: PwC Managed Services

The AWM industry is under intense margin pressure and at the same time being compelled to deal with non-core regulatory reporting and compliance tasks. Clients express concern about their lack of a comprehensive oversight of growing compliance obligations, and their risk of defaulting under high levels of scrutiny. Client want to grow and focus on their core services, and want a technology solution.

The PwC Managed Services Platform was built to address these concerns. A key feature of PwC’s Managed Services Platform technology is that it enables PwC’s integrated services delivery teams, as external providers, to comprehensively meet company needs across its full lifecycle, including planning & reporting.

For the client there is assurance of access to a fully scalable team that can meet specific needs, with cost savings from one dedicated service provider. PwC’s Managed Services Platform is tailored to your needs, intuitive and gives you the ability to track activities, deadlines and deliverables.

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Monthly Briefing team

Any requests? contact our team, PwC Luxembourg

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