Fund executives shopping for post-trade compliance systems have a new vendor to consider.
Confluence launched its Unity Post-Trade Compliance product for fund administrators at The National Investment Company Service Association's Technology Summit 2007 in Las Vegas last month.
The company provides automated data management products, and its new product expands these offerings by automating compliance-related functions that were previously done manually in systems not specifically designed for compliance reviews. Unity Post-Trade Compliance also creates an audit trail of any action taken to ensure adherence to regulatory requirements. It also lets advisors make sure their selection of securities remains within the boundaries of regulatory and prospectus investment limit restrictions after trades have settled.
The chief compliance officer of a leading fund company, who asked that his name be withheld, said the new market entry is part of a trend in which the best providers of data management services are trying to branch out and leverage pre-existing data programs.
The purpose of post-trade compliance systems is to enable regulators to quickly assess a company's records without much hand-holding or explanation from the fund company, the CCO said. "The more funds have to explain how they reached their conclusions, the less effective post-trade compliance programs will be," he said.
The new generation of post-trade products will help regulators and auditors check the accuracy of reports on their own without having to wade through irrelevant data, he added.
Confluence said fund administrators play a vital role in measuring the compliance evaluation relationship between advisors and regulators. The post-trade product will be based on existing Confluence data platforms that are already in place and used to aggregate data, issue performance reports and provide data streams to third parties.
"Our post-trade compliance tool is a single-point solution that will sit on a unified stream of data," said Kirk Botula, executive vice president and COO of Confluence. He likened the post-trade compliance function to an exhaust system of good data in that it is an outgrowth of other data uses within the company.
In addition, the post-trade compliance module will help companies make sure their data is clean, Confluence executives said. This is important because data integrity is the base upon which fund companies must run their data management operations.
"We can clean the data and make sure it is as error-free as possible," Botula said. He pointed to the prevalence of errors in spreadsheets as a problem for fund administrators that his company's product will solve.
Another advantage of the Confluence solution is that it can increase the robustness of a company's internal controls because it allows them to take an independent view of restrictions and viewpoints in managing data.
One reason for this is that the Confluence product is designed for the back office and will run independently of front-office data flows.
This gives administrators and regulators an opportunity to look at data and reports from a new position, potentially a more neutral one than is offered by companies with an integrated suite of front- and back-office programs.
"Our product can be used to assure data integrity by giving funds an independent view of their data," Botula said.
The initial rollout of Unity Post-Trade Compliance is taking place at the Principal Fund Group. "Due to the labor-intensive nature of the tasks involved with post-trade monitoring of investment restriction compliance, our desire to be as rigorous as possible while maintaining current staff levels had become extremely challenging," said Layne Rasmussen, vice president and controller at Principal. "Unity Post-Trade Compliance is designed to automate processes that were previously completed manually, while enabling us to centralize post-trade compliance holding data and monitoring on one system.
But Botula said the company expects to face marketing challenges in the product launch. With the emergence of its post-trade compliance product, Confluence is entering a mature market and one in which a group of trade vendors is already established. "There is a tendency for people to take an if it ain't broke, don't fix it' approach," he said.
Charles River Development is generally considered to be the market leader in post-trade compliance systems. A call to the company was not returned at press time.
The CCO speaking anonymously said a larger question is that while companies have been spending a lot to build out their compliance systems, post-trade and elsewhere, a concern is whether they'll sustain their vigilance.
"Right now, chief compliance officers have gotten comfortable learning to do the testing and handling their new roles," the CCO said. "But this has been a process three years in the making, and as time goes on, the fear will diminish, and with it may go the commitment to rigorous data monitoring."
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