Gwyn Roberts

02/02/2011 Author: Gwyn Roberts

Mind the gap: the growing expense of compliance

Two months after the deadline, funds are still unprepared for the FSA’s Stewardship Code. On the surface a rather sensible plan for better relations between investors and listed companies, the Code is the latest in a shower of compliance shards, that threaten to scyth through the cash balances of managers.

“Most funds have had their heads in the sand on this one,” said one long-standing consultant, referring to the Code.  “Following AIFM and Dodd-Frank, and the current concerns surrounding what the EU will do with short-selling, it’s one of many small pieces of compliance that managers could neglect.”

The two-month anniversary of the Stewardship Code is in effect a cypher – it could equally be SEC registration, Fatca or Fin48. And the issue isn’t necessarily with the tenor of new legislation, but with what it takes to comply. Most commonly: a fresh gap analysis.

A cycle of gap analyses has sent managers dizzy over the past 12 months. Vital for identifying where firms fail to measure-up, they are also expensive – costing as much as £20,000 – and necessitate a separate study for each manager and each new regulatory thorn.

Preparing for the Stewardship Code may be relatively simple. Many have already declared themselves outside the criteria because they take short-term positions and rarely engage with a securities’ management. Other issues, however, are not so clear-cut.

Timing is everything. Managers who have completed expensive, and premature, gap analyses to discern where they stand with AIFM, and SEC registration, may have to repeat the whole process as the legislation remains in flux; spinning out another shard of expense

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