Charles River Development has reminded the industry of its pedigree by going back to its roots, winning the best buy-side compliance product category in this year’s awards. James Rundle caught up with Stephen Butcher, managing director for EMEA, to talk about what goes into a successful compliance platform, and how managed compliance is taking hold on the buy side.
Charles River started life as a compliance platform and now it has come full circle by winning this award. What do you think buy-side firms are looking for in a competent compliance package these days?
Stephen Butcher, Charles River Development: There are fundamentally four things that people are looking for. There are simple rule libraries that are up-to-date and complete for regulations such as the Undertakings for Collective Investment in Transferable Securities (Ucits). There are easily defined templates for basic client mandates, and in terms of more sophisticated or bespoke requirements, there is the natural language ability, or the ability to code in a language that anyone can understand. The bigger challenges going forward are around having global disclosure on a cross-asset basis, including derivatives in order to meet the European Securities Markets Authority (Esma) requirements, and that’s a big challenge. You’re seeing some of the legacy compliance providers fall by the wayside, as they can’t invest to deliver those solutions.
Compliance has been a hot topic for many years now, and there has been a barrage of regulation to cope with. Do you think we’re coming to the tail end of that, or is there still some distance to go?
Butcher: I think there’s a long way to go. There seem to be a lot of numbers that you can add to the end of these acronyms, given that we’re now on the Markets in Financial Instruments Directive II, Ucits V, and a number of others. While I think the workload might have peaked, it’s still going to be pretty continuous for the years to come.
You mentioned the Esma stipulations as an area where firms are struggling to meet the requirements, but what other areas are also proving challenging?
Butcher: You see a lot of consolidation in the industry at the moment. We’ve seen Aberdeen’s acquisition of Scottish Widows, Standard Life buying Ignis earlier in the year, both of which are in the UK of course. That provides a lot of work in terms of recoding compliance rules, and so driving down the cost of maintaining those compliance rules is a big issue for clients. What we’ve found is that there is a great shortage of compliance skills, which drives prices up. One of the things that we’ve done is provide people who can handle the implementation of the rules, rather than the interpretation of the regulations. We leave it to the client for the interpretation, and as such, we can implement on a lower cost basis, and I think that’s a trend that you’ll see across the industry. Irrespective of the vendor you have, everyone needs to reduce their costs in this area.
Finally, what can we expect from Charles River over the next 12 months?
Butcher: We’ll continue to invest. We started 20 years ago as a compliance system for Putnam, and we’ve continued to invest since then, which will be ongoing. We’ll continue to add new libraries and keep those up to date. We’ll introduce a substantial shareholder disclosure product, whereby we will provide all of the rules for that across jurisdictions, and the reporting formats. Because, again, we’re finding that even with a small to mid-sized asset manager, it can take two to three people full-time to just maintain those disclosures. In addition to that, for larger hedge funds and small pension funds, we’re also offering a compliance service that’s completely hosted. We write the rules and do the compliance, but we leave the existing trading infrastructure in place. It’s all about offering low-cost solutions.
“One of the things that we’ve done is provide people who can handle the implementation of the rules, rather than the interpretation of the regulations.” Stephen Butcher, Charles River Development
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