Four major asset servicing firms, seeking to leverage their existing relationships, are marketing new services aimed at helping chief compliance officers at money management firms meet the compliance regulations that went into effect last October.
JPMorgan Chase & Co, Bank of New York Co. Inc. and Citigroup, all based in New York, as well as Boston's State Street Corp., are heavily focused on providing assistance to the new chief compliance officers. Others, such as Mellon Financial Corp., Pittsburgh, and Northern Trust Corp., Chicago, are mostly relying on their existing fund servicing platforms.
"It is a priority of ours. We recognized that clients are working through the implications of regulatory changes in the industry," said Virginia Meany, global fund services product executive at JPMorgan Chase. "The journey began on Oct. 5 when chief compliance officers had to be in place at asset managers."
In the wake of the 2003 mutual fund scandal, regulators at the Securities and Exchange Commission instituted stricter compliance practice rules for money management and mutual fund companies. As part of the new rules, firms were required to have a chief compliance officer on the payroll by Oct. 5.
The new regulations require that investment managers have:
• updated compliance policies and procedure manuals, with easy access to them;
• clearly defined compliance policies and procedures for third-party administrators;
• systems to identify trades that could be potentially problematic;
• well documented audit trails from investment decision to trade settlement; and
• a comprehensive cash-flow monitoring system.
The trick for the four firms targeting this area of business is to differentiate themselves, since most money managers have relationships with more than one asset servicer.
"No two customers look alike … The whole idea is to build open architecture that allows flexibility as every compliance officer is going to look at something different," said T. Andrew Smith, managing director of funds and securities services in North America for Citigroup's global transaction services division.
"The organizations that are going to make their mark in this space are the ones that can show the greatest amount of flexibility with the largest set of data," he said. "Taking (data and information) in from other service providers is going to be a critical success factor."
All of the service providers are offering technology that allows asset managers to keep track of portfolio holdings, alert chief compliance officers if investment guidelines are breached or trades could possibly signal late trading or market timing. While systems currently are bundled into broader servicing packages, the firms plan to eventually offer them on a stand-alone basis.