On the same day that Europe held its breath for the Euro 2012 football final, it also marked another event, which caused a headache for some and relief and jubilation for others. Today was the deadline for fund managers to implement the key investor information document (KIID). The KIID has officially replaced the UCITS simplified prospectus.
The European Commission in May said it wants the KIID to be extended to all investment products. The intention of the KIID is to enhance transparency and disclosure to investors for all financial instruments.
The regulator said Europe wide KIID regulation is necessary because of the risks posed to investors. It believes investors face confusing and overly complex information, which can lead to higher prices and the purchase of unsuitable products.
The KIID should replicate the investment prospectus of the fund, which will be particularly challenging in the context of the EU regulators plan to extend the KIID to all financial instruments, including about 300,000 investment funds in Europe.
The move by the European Commission has been highly anticipated by many service providers, particularly KNEIP, the independent data and technology provider that is preparing the funds industry for the implementation of the KIID. It serves 420 asset managers across Europe, via fund administration clients.
The first KIIDs were finalized over the last eight to 10 months, and will need to be updated soon. The second round of KIIDs will be due in the first 35 days of 2013.
Two months before the deadline, Lee Godfrey, deputy CEO of client service delivery at KIID specialist KNEIP, said many fund managers are still not ready for the KIID. With a 12 month grandfathering period we thought that 30% of KIIDs would be filled by Christmas. For companies that missed it they are coming to us and its a matter of us getting them ready. The challenge is around updating, continuity and defining the workflow. With about six weeks to go asset managers are being forced to act now.
Speaking to Global Custodian at the ICBI-hosted Fund Forum event in Monaco last week, KNEIP CEO Bob Kneip likened the readiness of the industry for the regulation to students waiting until the last day before exams before they start studying. As a result, many have left it too late to transpose their UCITS documents into KIIDs, he said. There is a lot of uncertainty and the industry is waiting for clarification on some of the regulations. Most organizations have underestimated what this means both inside and outside of the organization. In helping fund managers prepare for the regulation, fund administrators have had to develop strong relationships with management at all levels of the fund managers organization.
Kneip has seen an influx of business over the last two months. Two months ago we decided not to onboard any more clients, said Kneip. Now there has been an influx of queries and weve said we can help you with the context but we do not want to jeopardize existing client relationships by taking on an extra workload. Two or three months ago I would have expected clients to get organized. Six weeks after the deadline you have to produce the KIIDs again.
The next challenge will be the outflow of KIID documents in the next few weeks and post project follow up. The important steps are the generation of KIIDs and dissemination, regulatory filings and KIID reporting. We began this process in 2009 and at the end of 2010 we worked on the architecture and what it would cost. 2011 was the heaviest development for us. We are currently onboarding two large asset management groups.
It is difficult to charge them for this service (given that it is not something that has been requested before and the reporting functions were usually handled by fund managers inhouse) but we are expecting to make a return over the next three years. This is a recurring model and we expect to onboard more fund managers in order to cope with the massive quantities of data, which is far too expensive for fund managers to maintain, and it will be improved and be made more efficient. The service is ongoing and we are checking received documents and are improving the data.
Elsewhere in the industry, Finesti, which delivers strategies for the collection, management and dissemination of data and documents related to investment funds, tweeted that as of this morning, it had collected and was disseminating more than 155,000 KIIDs.
Bill Gourlay, director of fund segment strategy at RBC Dexia, with responsibility for the service providers entire UCITS IV strategy, including KIID production, told Global Custodian that industry readiness for the KIID has improved in recent months. We saw firms coming to us later than we would have hoped for. We were active in the early part of 2012 to get KIIDs prepared and many firms left it too late. Because of other pressures happening in Europe, the KIID is being viewed as a regulatory burden rather than a potential marketing tool. We are trying to take it from something firms dont want to do to something they can value from in terms of product set. This is the psychiatry we are trying to get to.
Gourlay says several countries in Europe have been slow to transpose UCITS IV into their own legal systems, resulting in delays to KIID implementation. There have been various distractions influenced by certain countrys political and economic make up. Belgium has issues around governance as do Spain and Italy and there have been problems in rolling out the regulation in a way that it would be practically used. These issues have caused various distractions in terms of how KIID production might help fund managers with their distribution. Given the context I think most fund managers that put the time into KIID production are now in a good position and the documents are in place. It wont be as disastrous as many might think hopefully the proof is in the pudding and we will see when the filings come out. Some firms have produced their own KIIDs while others are seeing they should be outsourcing this to a dedicated provider because of the work and internal resources involved. As a fund administrator with transfer agency expertise, this is a core area for us.
It is hard to work out what the costs are in KIID production considering the number of funds in the industry and those that fund managers that are due to launch further funds. It is not surprising that some firms have dropped out. As KIID production evolves and becomes part of a day to day activity for fund managers you will see a rationalization of the number of KIID service providers in the market in terms of whether this is a core area they want to be in.
– Janet Du Chenne