Launching a hedge fund can present many compliance challenges for new and emerging managers. At our third quarterly Emerging Manager Knowledge Exchange (EMKx) event, we explored the three main obstacles that new and emerging managers face.
Integrating compliance and operations functions is the most efficient way to navigate these challenges. By aligning these practices, firms can streamline their processes, reducing the risks of non-compliance and improving client service.
Compliance is not a checkbox exercise but a dynamic part of business operations that requires continuous updating to reflect regulatory changes and a firm’s specific operational context. When compliance becomes routine habit, it enhances the ability to respond to regulatory changes in real-time rather than retrofitting measures once new regulations are introduced. This proactive approach reduces the likelihood of non-compliance, which can lead to costly fines, reputational damage, and operational disruptions.
Efficiency is another significant advantage of integrating compliance into operations. When compliance and operations work together, procedures are streamlined, allowing firms to customise compliance processes to fit their operational model.
A tailored approach ensures compliance measures are practical and align with a firm’s needs. Avoiding one-size-fits-all methodologies ensures that compliance frameworks are effective and scalable enough to meet the industry’s unique challenges and regulatory environment.
Data management can be another issue, particularly when moving to new platforms. It is crucial to ensure that data is transferred securely and that firms maintain control over their records during transitions.
Transferring data between platforms presents a host of risks, including potential breaches or loss of sensitive information. To mitigate these risks, firms must establish clear data transfer procedures and ensure all compliance checks are in place. Additionally, understanding data ownership is crucial – firms must ensure that contractual agreements clearly define who owns data during and after transitions.
Given the increasing reliance on digital platforms, this aspect of operations cannot be overlooked. Poor data management can not only lead to compliance failures but also significant financial and reputational risks. Firms must be proactive in setting up enhanced IT security systems, such as firewalls and secure email protocols, to protect data during these critical transitions.
The FCA authorisation process can be lengthy and complex. Building a positive relationship with case officers during application can significantly improve the process.
Being courteous and responsive in communication with case officers can go a long way towards cultivating a positive relationship. Case officers hold considerable influence, and while their decisions cannot be guaranteed, transparent communication can lead to more favourable outcomes.
This also extends to ensuring the application is firm-specific, detailed and thoroughly prepared. Rushing applications or taking a generic approach can lead to unnecessary delays or even rejections. Therefore, firms must ensure that all business plans, financials, and agreements are finalised before submission.
The regulatory environment is evolving rapidly, and firms must ensure they are aligned with both compliance and operational best practices. By focusing on customising compliance, establishing positive engagement with the FCA and ensuring data security, firms can position themselves for greater success.
To learn more about some of the operational challenges of new and emerging managers, read our article here.
Linear Investments LTD is authorised and regulated by the Financial Conduct Authority (“FCA”) FRN 537389. Linear is incorporated in England and Wales, registered no: 07330725. The value of investments, and the income from them, can go down as well as up.