Compliance risk for alternative fund managers is rising and expected to increase over the next two years, according to research from Ocorian and Bovill Newgate.
Almost nine in 10 (88 percent) of senior leaders and compliance executives at firms collectively managing around $132.25 billion assets under management foresee higher compliance risks, with 11 percent predicting a dramatic increase.
Despite the increased risk, 64 percent of respondents said their compliance teams are inadequately staffed. More than half of the respondents said they are hugely under-resourced.
Coupled with the higher compliance risk is higher fines and sanctions for compliance violations. Sixty-seven percent of respondents said they have faced fines or sanctions in the past two years. A further nine percent admit they’ve received an information request or a visit from a regulator in the past two years.
More investment in technology and systems is needed to combat these trends, respondents said. Fifty-eight percent of fund managers said they are prioritizing investment in technology over the next 24 months. Investing in process management systems and hiring knowledgeable personnel were also top priorities for the majority of respondents.
Matthew Hazell, co-head of UK Funds, Guernsey & Mauritius, at Bovill Newgate, said firms must have a thorough understanding of their own compliance and risk needs in order to invest in the right systems, processes and people to protect themselves from these future risks.
“We recommend following a three lines of defense approach to protect their businesses – firstly, implement robust procedures, policies and training; secondly, comprehensively monitor these; and finally, review and challenge through independent audit,” Hazell advised.
