8 Investment Reporting Best Practices for Regulatory Compliance

One of the biggest challenges for compliance professionals working at mutual fund or insurance companies can be identifying what regulatory requirements apply to a particular business or product and correctly following them. 

As regulatory requirements continue to evolve and compliance becomes more complex, the need to communicate and implement changes across multiple departments increases. In many cases, this involves many stakeholders with differing objectives, making the task even more complicated for global firms grappling with competing regulatory priorities across regions. 

To ease compliance with new regulations and disclosure requirements around the world, firms need to implement new investment reporting technology and processes. While there are many solutions available, understanding what’s changing in the market and best practices for using new compliance technology will help companies find the right solution for their needs — both current and future — easing the burden on compliance departments.

1. Be aware of regulatory shifts for insurance and mutual funds

As many investors search for products to help them plan for retirement, regulators have increased their compliance requirements for firms that offer diverse options, including insurance and mutual fund companies. 

For example, insurance companies offering variable annuities are required to file form N-4 with the Securities and Exchange Commission (SEC). For variable life insurance contracts, companies must file form N-6 to give investors clear communication about the product. These prospectuses lay out the risks, performance, objectives, and other key information of these investments and are meant to help investors better evaluate the offerings by making comparisons standard. 

In October 2018, the SEC proposed that insurance companies also produce a summary prospectus for annuities, setting the stage for companies to alter their disclosures to be in compliance with these new rules. 

Annuities regulations have been changing in the European Union as well, with rules reworking how risks are disclosed, changing summary requirements, and giving frequent issuers the option to file a universal registration document, which can speed time to market and create more efficient financial reporting. 

Companies also must deal with changes to eXtensible Business Reporting LanguageTM (XBRL® ) rules, which aim to improve data quality and availability. The new regulations mandate that financial statements and risk/return summaries use XBRL data embedded directly into the filing, making it readable by people as well as machines. Other changes were made to forms that fall under Regulation S-K requiring companies to hyperlink to references and amendments.

Besides international regulations, many insurance and mutual fund compliance departments must also follow rules that vary by state or region. For example, broker-dealers selling annuities in New York need to comply with best interest requirements, including documentation and disclosure requirements. 

With complex rules that vary by jurisdiction and regulatory body, being able to draw from templates and other pre-populated language can help ease new product offerings and speed up regulatory filings. This enables compliance departments to innovate, in a manner that doesn’t put the company in danger of missing regulatory filing deadlines or running afoul of specific regulations.

2. Use language that can be understood outside the investment industry

Many companies have varying ways of saying the same thing in filings, depending on which department or vendor developed the initial document. For example, the language talking about interest rate risk may vary across mutual fund reports, using overly complex language or confusing syntax. Inserting simple, standard language can improve comprehension and allow investors to evaluate their options to better compare products. 

Maintaining and updating language across documents can be tedious and time-consuming. By linking documents, edits made in one location will be reflected across documents automatically creating consistency and clarity for investors and regulators. That means updating the definition of interest rate risk could be as simple as editing one location.

Look for an investment reporting system that shares language, allowing you to quickly implement templates from work that’s already been completed and approved. Streamlining how you talk about common topics across filings helps improve clarity and mitigate errors.

3. Maintain a document editing process

Editing or updating sections means making the same change across hundreds of documents. This is a manual process that is time-consuming and prone to errors, especially in the creation of compliance and other regulatory filings that reach across vendors and software platforms.

Insurance and mutual fund companies should look to implement investment reporting software that tracks who makes edits and when they are made, creating a transparent record of changes. This can help pinpoint errors more quickly and can speed processes by making sure everyone is working from the latest version of a document.

Having documents linked via a comprehensive investment reporting software means only making edits once. And since various teams must often complete editing work before moving forward, a system allowing multiple individuals to edit a document at once results in faster progress and review times.

4. Pay close attention to version control

Investment reporting software that provides a system for tracking changes, who is making them, and that automatically saves the latest version for everyone creates efficiencies that benefit all departments involved in reporting and ensuring compliance.

An end-to-end software ensures anyone accessing a document is editing the latest draft. You don’t have to worry about compiling changes from various versions or having multiple people working simultaneously. This also helps cut down on errors when different people need to edit the same document on the same deadline.

5. Minimize costs and complexity

Many companies use multiple vendors to create regulatory filings, including writers, editors, typesetters, formatters, XBRL experts, and others needed to comply with all necessary requirements. With so many people inside and outside of the organization working on documents, the management can be complex, and the costs are a challenge to control.

The right investment reporting software can reduce the need for outside vendors since information is automatically formatted and ready to be presented to regulators. Having fewer external vendors improves data security and decreases costs, giving compliance teams greater control over the final documents.

As margins are shrinking due to rising regulatory costs and dropping fund fees, many companies are beginning to examine investment reporting processes for places to save money. The right compliance technology can help reduce outsourcing and overtime costs.

6. Create style guides to ensure brand compliance

Many compliance departments spend too much time and energy formatting documents to meet brand guidelines or money outsourcing this work.

Creating customizable style guides means that information pulled from various sources ends up in the same format. No matter the source material — emails, documents, or other electronic files — the end result meets regulatory compliance reporting guidelines.

Good investment reporting solutions also allow users to preview documents in different modes (EDGAR, PDF, Word®), cutting down on formatting errors and reducing the need for manual cleanup.

7. Maintain a modern compliance department

Compliance departments need to evolve with regulations. With higher volumes of filings comes the need to create efficiencies. Look for a cloud-based reporting system that can handle heavy usage, especially during peak times.

Securing executive and manager buy-in can ease the transition to a new system and speed adoption across departments. Executive sponsors can also accelerate the scaling of new systems, implementing them quickly, starting with main users and moving outward.

8. Use an investment reporting software

With the Investment Company Reporting Modernization Rules, companies need to add new disclosures. For those firms that have already uploaded the necessary content in a shared system, it’s easy to be in compliance. That cuts down on the time needed to create documents as well as hiring outside experts. Compliance officers can leverage existing work, generating significant savings in cost and time.

As insurance and mutual fund companies work to comply with new rules, they can draw from work done in other areas of finance and additional compliance departments. If they have the right global investment reporting technology, it’s easy to create these filings from templates and pre-existing, already-approved information. It’s as simple as customizing language for a particular offering.

It’s also critically important to connect data across documents in order to reduce errors. Being able to update numbers in one place and having it populate across documents by implementing investment reporting software can drive significant efficiencies.

As a result, compliance departments can reallocate resources, shifting from being reactive to proactive. By cutting down on the number of vendors, versions, edits, and other manual processes, teams can focus more on the business and how to help generate improvements.

Enhanced compliance in investment reporting

Compliance departments don’t have to start from scratch to satisfy new regulations; they can build documents from content that is already shared. Time savings are recognized by having all the content for hundreds of funds, investments, or products in one place and linking to each report. This saves making multiple edits and means that updates made in one place will populate simultaneously in other documents. 

While regulatory changes are making information more accessible, they mark a shift in how many companies compile and execute financial statements. This necessitates alterations across several departments and could mean an investment in technology for some to become compliant.

Regulatory filings are an important part of following the law, but there are other areas that compliance can improve if given the opportunity. More efficient and accurate filings help the business, investors, and regulators. Companies should look for investment reporting software that offers immediate cost savings, yet can scale to serve other department needs.