CASE STUDY

BMO Global Asset Management

BMO had been using FE fundinfo’s Regulatory Documents & Templates solution for UCITs KIIDs for about three years. So, when the pressure was on to comply with the latest round of regulatory requirements in the shape of PRIIPs and MiFID II, it seemed logical to extend FE fundinfo’s services to cover the new regulations.

03 April 2018


BMO Global Asset Management had been using FE fundinfo’s Regulatory Documents & Templates solution for UCITs KIIDs for about three years. So, when the pressure was on to comply with the latest round of regulatory requirements in the shape of PRIIPs and MiFID II, it seemed logical to extend FE fundinfo’s services to cover the new regulations.

Paul Byrne, BMO Global Asset Management’s regulatory analyst, explains why this made sense and describes how he worked with FE fundinfo on the complex regulation to achieve compliance.

The Challenge

There were in fact two main challenges.

Firstly, a compliance deadline for both the PRIIPs and MiFID II regulations was fixed for the beginning of January 2018; secondly – and the source of many problems - were the differing interpretations and guidelines as to the way in which the calculations should be done.

“The cost and charges side of the regulations is very confusing,” says Paul. “There are still inconsistencies resulting from the different interpretations of the rules across Europe, thanks to conflicting guidance from different regulators. We could potentially be asked to calculate the same number in several different ways, leading to confusion all around.”

The problem started with PRIIPs. Regulators recognised that their preferred methodology was challenging so they released a simplified version, which led to many firms not calculating the numbers completely accurately.

This was compounded when firms were advised to use the PRIIPs calculations as a base for MiFID ll, which thus inherited the flawed inconsistencies from PRIIPs.

Plus, there was a further change required from the FCA relating to costs and charges for pension schemes coming into force on 1st January 2018. This referenced the PRIIPs and MiFID ll methodologies but asked firms to categorise and calculate things differently.

“Ideally asset managers want to be able to set up one calculation that fits all – not three or four, which is what we were being asked to do,” says Paul. “It was so confusing.”

Like other asset managers facing this conundrum, BMO sought outside help – in the shape of FE.

Why FE fundinfo?

Existing relationship

FE fundinfo already worked with the asset manager for UCITS KIIDs production, so while Paul had a “quick look” at what else was available, it made sense to keep things in one place as FE fundinfo was already processing a lot of the data required for BMO's factsheets.

FE fundinfo had already done the SRI and SRRI calculations on the PRIIPs side. They just needed to put these into the EMTs too.

On the EPT side, FE fundinfo was also responsible for calculating the performance scenarios.

Paul initially considered keeping the data validation in-house, but ultimately opted for an almost fully outsourced model, with only a small element of the work done in house.

“Our goal in using one data provider for everything is that we want to achieve a single ‘golden’ source for everything” says Paul.

Market knowledge and expertise

A further factor was FE fundinfo’s knowledge of what is going on in the market and what other firms are doing.

FE fundinfo’s regulatory team were very well-informed and were able to interpret the regulations expertly. The team also works with several industry working groups, which further helped in interpreting the regulations correctly.

“The ability to bounce ideas off these people has been very, very useful,” says Paul. “It wasn’t just a matter of implementing a piece of software – we were able to say to them: are we doing this correctly? How do you interpret this? That was a real positive.”

While Paul also attended several roundtables organised by FE fundinfo to help clients understand and interpret the new regulations, a lot of the interaction was on an informal basis.

“I see it as a part of the service when you engage someone like FE fundinfo – we get the benefit of their knowledge. They’re more than happy to share this with clients – and of course it’s a two-way street: we feed information from our contacts back to FE fundinfo too.”

The project experience

From June 2017, the initial project focus was on PRIIPs KIIDs documentation. From September, work began on the MiFID ll requirements. FE fundinfo put the EPT together, ran the performance and SRI calculations, and produced and distributed the PRIIPs documents.

“The experience was very good,” says Paul. “We then piggybacked on that work to produce the EMT for MiFID ll. All went fairly smoothly. In project mode, FE fundinfo was incredibly reactive, and everyone dealt with any issues very quickly.”

Moving forward

The end of 2017 was busy for both BMO and FE fundinfo, but the deadlines were met – despite a last-minute crisis with the German aggregator of a distributor’s data.

The focus now is on refining elements, such as tolerance checks.

Says Paul:

“Firms were so desperate to comply with EPT and EMT obligations, with distributors threatening to delist asset managers’ funds from their platforms if they did not, that for many it was a question of ‘get something out there’. So initially the numbers from many firms were far from accurate.”

Since then many have done a clean-up.

BMO has also issued monthly updates so as each month goes by, the numbers are more accurate and the divergence much reduced.

But as Paul points out, with some firms still using the simplified methodology, which is inherently flawed, it is still not possible to compare like for like - which was the objective of the new regulation in first place.

Benefits summary

The main benefit of working with FE fundinfo was having access to their knowledge base; being able to work with people who had a good understanding of what was needed from the start.

“The project side was done very well and having FE fundinfo’s regulatory team to consult with was a real benefit,” confirms Paul.

And although Paul’s first preference may have been to do something in-house, by removing the distribution burden from BMO and taking on responsibility for what is essentially a repetitive and largely data-focused task, FE fundinfo demonstrated that outsourcing can work well in this type of scenario.