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Industry preps for major reporting overhaul

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In the second quarter of 2018, the Form N-PORT compliance era will officially begin. Just how ready is the industry for this significant reporting overhaul?

It was about a year ago that the SEC ruled to modernize — and increase — the reporting of holdings information provided to the commission by registered investment companies.

Many of these institutions will move from filing a couple of reports annually to adding monthly reporting on all the funds in their portfolios in a structured data format. Needless to say, this involves wrangling a lot of data on a regular basis, in the quest for enhanced disclosure. As of now, the earlieset scheduled compliance date (for larger filers) for the form is June 1, 2018.

Despite some hope that the final rule will be delayed or even dismissed due to a less-regulation-friendly administration or a request by the ICI, the industry has been working hard over the past 12 months to prepare for this reporting rule modification.

Looking back at the work done over the past year, it's heartening to consider all the progress that has been made toward hitting this challenging goal. A lot of work has been completed, much certainty has been gained, concrete plans are in place and efforts are moving along at a good pace.

Here are some of the main insights that have been gained during this process, and a look at the four main phases of data readiness ahead of Form N-PORT's compliance date.

While working with our clients over the past year, we confirmed our pre-rule research that "data is the thing."

E-filing and form calculation are, of course, important, but those components are generally regarded as low-risk commodities. The real value is connected to the data and how to manage it, and this has been and continues to be a chief industry focus.

On the data side of the house, we have seen the market segment their readiness into four mostly consecutive phases. While there is a lot of overlap in the phases, each has a distinct time frame for completion.

Phase one of this process involved selecting a data management and filing system. The early timing of this phase was driven largely by the third-party administrators who need tangible evidence of readiness as they make the case to their clients, but also because the data management system is a prerequisite for the other phases.

By the start of the third quarter, most filers had their selection in mind, and by the end, the majority had completed their purchase and closed the books on their data management and filing systems.

Phase two involves working with what you might call "free" content; this is content that administrators have on hand now. It's made up of information held internally, or that will be provided by current service providers - holdings, trial balance, returns, collateral, SEC lending, fair value designations and the like.

The information will need to be repurposed for Form N-PORT, but filers won't need to figure out where to get it.

The most notable aspect of this phase is working with upstream systems to ensure the data exists in a usable format. Filers are currently organizing, inventorying, relating and otherwise working on how they are going to use existing content in a new way. This activity will continue all the way through the end of the first test filing period in December, and possibly on into the first quarter of 2018.

Phase three involves securing paid content, or at least part of the paid content. Content that is not used today by the back-office team, such as data enrichment and risk metrics, will need to be received from a new provider.

There is still some uncertainty as to who will provide this information to the filer. Will it be the administrator, the filer or the advisor? All signs are pointing to the filer — which is most often the fund's administrator — acquiring this information.

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But as of yet, things are not clear. You can likely expect some more clarity on this matter before the end of this year, with decisions probably still being made early into the second quarter of 2018.

Phase four, the final stage in the data readiness process, deals with liquidity. Liquidity categories will be determined by advisors either on their own or via a liquidity provider.

Even if a liquidity provider is selected, a facts-and-circumstances analysis must be performed by the advisor, the settings of the liquidity tools must be set, and the monitoring and program administration will need to be covered.

Between the added complexity and the extra six months of available prep time, my prediction is that those decisions will not be made by the majority of the market until the third quarter of next year.

But with continued effort in broad data readiness over the next several months, we should all be in good shape to hit that first filing date.

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