# 6
MARCH 2016
Art &




  • I
  • II

    The Future of Transfer Agency

    by: Sebastien Danloy, CEO, RBC Investor Services Bank,
    Managing Director, Continental Europe & Offshore,
    RBC Investor & Treasury Services
  • III

    Game-Changing Innovation

    by: Phil Goffin, Director of Innovation, Funds Exco,
    International Financial Data Services
  • IV

    Preparing for PRIIPs

    by: Christiane Schon, Head of Brokerage Equities & Funds,
    and Jacques Reich, Head of Structured Products,
    Banque Internationale à Luxembourg
  • V

    Manual Data-Entry is Old-School

    by: Agnieszka Kupper, Senior Content Analyst,
    Pricing & Performance Benelux, Thomson Reuters
  • VI

    Beyond the Hype: FinTech at KNEIP

    by: Armann Gudmundsson, Regulatory Reporting Team Leader, KNEIP
  • VII

    A Path Full of Pitfalls

    by: François Genaux, Partner & Benjamin Gauthier, Director, PWC
  • VIII

    Challenges and Market Best Practices of Solvency II

    by: Olivier Richard, Deputy Head of Financial Engineering ETF & Index Funds,
    and David Niddam, Responsible des Solutions d’Investissement Dédiées, Luxor
  • IX

    Regulatory Convergence for an Efficient Capital Markets Union

    by: Geoffroy de Lamalle, CEO, eProseed
  • X

    3 Ways to Conquer Complexity

    by: Jean-Luc Brach, Chief Information Officer, KNEIP
  • XI

    A Conversation Between Jean-Jacques Deleval, Painter,
    And Revel Wood, CEO of FundRock Luxembourg S.A.

  • XII

    Fund Data Publication Considerations
    EU Requirements for Investor Disclosure



Dear readers and friends,

Welcome to the 6th edition of the Bottom Line, where we will focus on different regulations and new technologies, the impact they have on the industry, and the challenges asset managers and fund administrators have to face—and solve—in order to keep compliant, competitive, and sustainable.

Not long ago, new regulatory initiatives had the goal of harmonizing markets, boosting competition, and enhancing efficiency. Today, the aim of new regulations and directives has evolved, with a focus on systemic solidity, risk management, deeper oversight and most importantly, increased investor protection. This makes it even more difficult for fund managers to handle these intricate interconnected regulations. Our goal is to bring some clarity over these topics.

In this issue, we look at the difficulties and dilemmas PRIIPs is posing and how asset managers can better prepare, from an implementation point of view, its risk, performance and cost analysis. We also address the Solvency II regulation and particularly its challenges and market best practices, and lastly we have a glance at a regulatory convergence for an efficient Capital Markets Union and how National Competent Authorities can better prepare for the variety of electronic exchanges.

From a technology standpoint, we analyse the impact Big Data has in the fund industry and the future of the transfer agency, how IT can help to improve the workplace and the way we are applying it, the impact disruptive technologies such as Blockchain have in the financial services and how they might be game changers, and lastly we talk about an important aspect of FinTech that lies behind all of the media hype that the buzzword is getting.

This edition’s beloved ‘When brush meets Business’ sees artist Jean-Jacques Deleval and businessman Revel Wood exchange opinions about art, business and their similarities and their overlaps.

Here’s wishing you an enjoyable read,
STEPHANIE NOEL, Head of Operations,
Member of the Executive Board, KNEIP


The Future of
Transfer Agency

by Sebastien Danloy
CEO, RBC Investor Services Bank

Over the course of the last several years, the transfer agency industry has devoted significant time and resources to meeting the requirements placed on itself, and on its clients, from the wave of new regulation aimed at increasing transparency and investor protection. At the heart of these developments has been the need for greater collection, management and analysis of data to enable more effective reporting.

Considerable investment has been made in both people and infrastructure in order to implement the required changes to provide accurate investor information, If this wealth of data on underlying investors held by asset servicing providers could be harnessed, extracted and packaged appropriately then there is a great deal of potential for informing fund managers on the profile of investors that are choosing their funds, and by extension, helping inform product development.

Moreover, this rise in data collection is occurring against a backdrop of increasing cross-border fund distribution, fuelled by asset managers aiming to maximise fund subscriptions in a context of competitive domestic markets and margin compression. The introduction of UCITS IV and the Alternative Investment Fund Manager Directive (AIFMD) has helped to energise cross-border distribution thanks to the benefits and simplification of fund pass-porting. But while the sources of potential fund sales may increase by country and investor classification, gaining an insight to fully appreciate individual and collective fund sales performance as well as market trends remains the Holy Grail.

A potentially large mine of data is trapped within transfer agency systems because the appropriate mechanisms have yet to be created to extract and deliver it in a meaningful and useful format. The transfer agency industry processes hundreds of millions of transactions globally every year, data which if correctly repurposed, could enable TA providers to support their clients in gaining the valuable insight into cross-border fund sales. Moreover, combining transactional data with macroeconomic trends, which asset managers require for their successful product development, transfer agents could begin to support the asset manager clients’ regulatory compliance and/or sales management with reporting as well as provide useful intelligence to help identify sales patterns, which could in turn enable the nurturing of marketing plans and inevitably help to increase returns.

Sebastien danloy At RBC Investor & Treasury Services Headquarters in Luxembourg

RBC I&TS has taken this approach with the development of its Fund Sales Intelligence service. RBC I&TS holds a substantial amount of UCITS funds’ sales flow data, processing about 10 million fund subscription/redemption transactions per year, and has developed a multifaceted platform that enables fund managers to gain a greater understanding of how their global UCITS fund distribution performance compares to that of industry benchmarks, as well as providing access to market and macro-economic data across major UCITS distribution countries.

The transfer agency industry is perhaps no more immune to the arrival of new entrants and disruption than more traditional financial services. It was difficult to envisage before the emergence of PayPal that retail payments would be initiated from any other source than a bank. Traditional technology companies will likely continue to explore further diversification, whilst FinTech companies are increasingly active at looking at different ways of structuring, or disrupting, the industry and its processes. Unless the transfer agency industry has the foresight to evolve their offering, new market entrants may well thrive in this industry, as they have in others. In leveraging their big data by developing a flexible interfacing tool that enables asset managers receive, store, manipulate, consolidate and interpret data, not only are they solving a need for their clients, they will also provide an extension of their service that is unique to them.


The financial industry has been slow to react to Big Data, but with requirements for more data to be collected, implementation is an opportunity that should not be ignored.


Game Changing Innovation
Distributed Ledger technology:

Are Blockchains the new future
of financial services and funds?

by Phil Goffin
Director of Innovation, Funds ExCo,
International Financial Data Services

Last year blockchain started to gain strong interest from mainstream financial services. The dark legacy associated with bitcoin—the currency of choice for cyber criminals and old-school crooks—was forgotten and large bank banks have endorsed the technology by investing heavily in blockchain start-ups. Regulators too developed a strong interest in blockchain as a means to reduce risks and improve controls.

Santander claims that blockchain could save banks $20 Billion a year by 2020. Their math is simple: blockchain streamlines back-office processes by ensuring that obligations arising from transactions are certain and cannot be denied or fraudulently modified. Debtor and creditor ledgers on the blockchain are tamper-proof, removing the need for confirmations and reconciliation. In the current world, synchronising ledgers across institutions can take several days or months.

Blockchain also provides a secure payment infrastructure that removes the need for banks, central clearing agents, and settlement authorities, reducing risk and freeing up capital. As economists at the Bank of England recently explained, blockchain “allows a payment system to operate in an entirely decentralised way without intermediaries such as banks.” It is not surprising that they asked to develop a blockchain for their Real Time Gross Settlement system, the national payment network used by financial institutions in the UK.

A blockchain is a storage of information distributed across multiple computers. Strong cryptographic controls ensure that once transactions are posted and confirmed, they cannot be denied or tampered with. Miners are rewarded with newly minted coins—a digital representation of the fees paid for their services—in exchange for lending their computing power to store and confirm the consistency of transactions*. Transactions are grouped in blocks and attached to the main chain. As a result, blockchains record property rights with the highest degree of certainty—the foundation of modern economies which, ironically, bitcoin was intended to subvert.

Recent news sounds like the beginning of a revolution. Last year Nasdaq migrated its private companies register onto a private blockchain platform and the R3 consortium created a private blockchain, based on the Ethereum, to connect Barclays, BMO Financial Group, Credit Suisse, Commonwealth Bank of Australia, HSBC, Natixis, Royal Bank of Scotland, TD Bank, UBS, UniCredit, and Wells Fargo.

Goldman and JP Morgan are also using private blockchains. The true revolution, however, has yet to come. Banks are focusing on private blockchains to pilot specific solutions as opposed to public chains which may revolutionise the way we do business.

Private blockchains are effective means to reducing costs and increasing process resilience, thanks to the many nodes that coexist in disparate locations. Private chains negate a powerful (but scary) feature of public blockchains: information is public for every one to review and access, and anyone can join as a consumer, an agent, manufacturer or market maker.

Phil Goffin, Director of Innovation, Funds ExCo, International Financial Data Services

Would companies feel comfortable publishing their accounts on an ongoing basis to the rest of the world? Economists would argue that symmetric information leads to efficiency; however, cryptographers know that this is an important issue to address. An elegant solution to this problem exists: homomorphic encryption, the ability to process encrypted information. Unfortunately, this is still a concept as existing algorithms are 1 trillion time slower than processing unencrypted information.

Ethereum and Bitcoin address this issue with secure multi-party computation, where information is broken-up in chunks and processed by diverse parties.

Furthermore, Ethereum can represent and enforce complex contracts among two or more parties, where a given sequence of events and the will of parties can influence the outcome of a transaction. Smart contracts enable the implementation of new business models where, for example, product distribution no longer requires intermediaries whose main role is to provide administrative support.

Registries and sub-registries can be maintained directly on the chain and payments can be rejoined tightly with delivery events, negating the need for clearing, settlement and confirmation processes, which effectively minimises counterparty and credit risk.

Coloured coins are a simple and effective implementation of smart contracts. Ownership of assets—physical or digital—is attached to a given coin, identified by its unique number. Parties agree that once the possession of the coin is transferred, the ownership of the asset follows. The issue of trust can be mitigated by involving a third party to guarantee the digital asset.

Is this the start of a revolution for the fund industry where digital assets will flourish on a blockchain? Contact us @ to find out more.



Christiane Schon and Jacques Reich OF Banque Internationale à Luxembourg, discuss the Packaged Retail and Insurance-based Investment Products (PRIIPs) regulation and the challenges it will bring, and how their organisation is tackling this issue.
by Christiane Schon
Head of Brokerage Equities & Funds,
Banque Internationale à Luxembourg (BIL)
and Jacques Reich
Head of Structured Products,
Banque Internationale à Luxembourg (BIL)

BIL, Luxembourg’s oldest private bank, manufactures and distributes investment products. PRIIPs will affect both of those functions significantly. As a manufacturer of investment products, BIL must now give thought to how it will produce and disseminate the Key Information Document (KID) and Summary Risk Indicator (SRI) now required under PRIIPs. KIDs are standardised investor disclosure documents designed to bolster investor protection while SRIs are a market risk measure and credit risk assessment. So how is BIL overcoming these challenges?

BIL has integrated the PRIIPs regulation workflow into its overall MiFID II (Markets in Financial Instruments Directive II) compliance project launched in October 2014 with four working groups devoted to the initiative. These working groups focus on: Manufacturers, Distributors, Insurance products and IT.

It has proven to be a massive transversal project involving a number of different departments and over 20 employees.

PRIIPs analysis began in 2015 following the publication of the first discussion paper by the Joint Committee of the three European Supervisory Authorities in November 2014, and the workgroups will begin the actual implementation stage this year.

“PRIIPs should go live by January 2017, and we hope this date is not pushed back, even though the time frame is very short. The reason is simple. If MiFID II is pushed back by one year, we can switch some resources from this Directive to PRIIPs and get one regulation up and running, avoiding the high pressure of implementing these two regulatory initiatives at the same time,” said Christiane Schon.

The introduction of PRIIPs will improve retail investors’ ability to understand and compare investment products across sectors, and provide greater transparency of the associated risks and costs of investment products. One way this will be achieved is through the SRI.

Currently, product manufacturers will use their own risk matrix and methodology, particularly around credit risk. This is a clear and easy-to-implement method of calculating risk. It is, however, less straightforward to develop a methodology for calculating market risk. Typically, manufacturers will select the rating they want, making it harder for investors to compare similar products from different issuers. It is hoped PRIIPs will bring about a level playing field.

Christiane Schon and Jacques Reich of Banque Internationale à Luxembourg

However, SRI calculations are not entirely straightforward. The calculations around the SRI must be kept up to date and readily available to existing clients. SRI calculations could be challenging for small banks who may be required to build up their internal infrastructure or outsource to external providers, particularly when reviewing historical PRIIP values or underlying assets. The data requirements could be challenging for manufacturers, who will need to collect and collate huge volumes of information.

In its role as a distributor, BIL must collect KIDs from third party manufacturers. Given BIL’s open architecture, this is an operational challenge that must be overcome.
Producing a KID is not an easy feat. It is critical firms use plain, simple-to-understand language when outlining their investment products to retail clients. Firms must also ensure KID translations are correct and not open to misinterpretation. While BIL’s current term-sheets are straightforward and use plain, accessible language, its marketing and compliance teams are spending time ensuring clients can properly understand the KID.

BIL currently translates investor documentation, which includes KIDs, into four languages. To manage the process, it is building translation templates covering standard products. Going forward, this will be used as a repository to facilitate future KID translations. Nonetheless, many organisations including BIL feel the KID translation costs will be onerous and time-consuming.

As the KID is a pre-contractual document, providing an updated version to existing investors might also prove challenging. BIL will make its KIDs accessible online and will notify clients of the update. This is how BIL operates under UCITS, which also requires KIIDs to be supplied to investors.. “Everything comes down to suitability and if a product risk does not correspond to the client’s risk profile anymore, it is important to inform them so they can decide to stay or get out of the product. This is already a common practice at BIL for current products,” said Jacques Reich.

KIDs must be kept up-to-date. This must incorporate a variety of trigger events including market volatility, fees and changes in client suitability. All of these factors could result in material changes to the KID having to be made. BIL is monitoring products closely and evaluates the different criteria which may trigger a KID change on a daily basis.

BIL has implemented an automated process to help overcome this challenge. Despite this, the workload involved is still substantial. Continuously monitoring for potential trigger events, and making the relevant changes requires a lot of effort. As such, many firms may simply offer fewer products to clients given the enhanced workload. Such a scenario will not bode well for investors looking for diverse investment products.

The PRIIPs rules are introducing additional obligations for industry and regulators alike. Market participants will see product set-up costs increase, which may lead to a smaller range of products being offered to clients. Meanwhile, regulators will find themselves inundated with huge swathes of electronic data and information. This inflow of information could be difficult to manage, and there may be a need for regulators to re-think the submission process, either by developing enhanced websites or platforms where KIDs can be received automatically and seamlessly. This ought to be a priority for regulators as many will receive an enormous amount of regulatory reporting information, not just through PRIIPs but courtesy of MiFID II, the European Market Infrastructure Regulation (EMIR) and the Alternative Investment Fund Managers Directive (AIFMD) to name but a few. Having an information overload will not be conducive to regulators’ ability to protect investors and guard against systemic risk in capital markets.


Keep eyes on the ball and do not
underestimate the size of the PRIIPs project.


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by Agnieszka Kupper
Senior Content Analyst, Pricing & Performance
Benelux, Thomson Reuters

Investment decisions have never been made so quickly and with access to such vast amounts of information. Now, more than ever, quality and timeliness are critical. The best way to speed up the distribution of data and add more effective quality checks is to utilize more and more the automation with the ultimate goal of achieving Straight-Through Processing (STP).

Catch your own goldfish in the big data ocean

A platform’s competitive advantage is in the content it provides, this is the selling point. Clients want the full view on the market as quickly and as accurately as possible in order to pull out the pieces that suit their needs. The fund industry has to keep up with the growing number of regulations as well as manage a huge amount of data. Most of the biggest data providers in the market have been building their brands for years. Unfortunately, the trust earned over time could be lost by passively observing the technological revolution in the data world. Once one’s brand is negatively affected and credibility is lost, it’s very hard to regain a desirable position. Big players in the financial industry cannot afford displaying inaccurate or outdated information. Accuracy and speed being the “new black” is indisputable, and it can be achieved by taking the advantage of STP, which enables omitting unnecessary delays in publishing the data without diluting proper quality control.

Speed boost? Yes! Mediocrity? Not an option.

Historically, data vendors have strived to collect specific information. 100% coverage was the primary goal. Quality was easier to achieve as the amount of data was significantly smaller and a manual input environment allowed for more time to double check data before releasing it to clients. Nowadays, new solutions have to be implemented to achieve the same results with a much greater quantity of available information. The first step was moving from post-publication to pre-publication quality checks, and then automating them. In the past, most data errors were manual data entry errors. Now Thomson Reuters spends most of its time catching mistakes made directly at the source. Data transfer has always been the industry’s weakest link, and nowadays, when the volume of data seems to grow continuously, proper data management becomes more and more important. It is virtually impossible to control the flow of data via e-mail or over the phone. Third party data providers need to adapt to the rapidly changing environment to ensure the old school data quality is preserved and there are no distortions as the data moves from one end to another. It is no longer worth investing time in manual rekeying of data if the information can be easily transmitted electronically.

Famous clock at Reuters Plaza

Are people redundant? The Lipper story

The industry is moving forward to a golden copy structure and there are more and more challenges ahead. An analyst’s role evolves from a data entry person to a content professional. Instead of hiring many people just for collecting and manually typing in the proper values into corresponding fields in the database, companies will depend on employees skilled to either verify, analyze, use the data or develop IT systems.

Years ago, when the Thomson Reuters Price & Performance Team was established as the Lipper Content Team, management realized that analysts need to have direct contact with the sources, which included fund management companies or service providers that act as an extension of backoffice, such as KNEIP. This required market knowledge, as the person who re-typed the data into the database would speak to asset managers or administrators.

Every analyst has covered all data related to a whole set of funds, not a single process or data field. No more than six years ago we have been inputting most of the prices manually. At the moment, the Global Automation Team processes over 7,000,000 data points coming on the 19,000 files every day. The approximate time it takes from the file delivery to when the price appears in the database is only 10 minutes.

Speed boost? Yes! Mediocrity? Not an option.

Historically, data vendors have strived to collect specific information. 100% coverage was the primary goal. Quality was easier to achieve as the amount of data was significantly smaller and a manual input environment allowed for more time to double check data before releasing it to clients. Nowadays, new solutions have to be implemented to achieve the same results with a much greater quantity of available information. The first step was moving from post-publication to pre-publication quality checks, and then automating them. In the past, most data errors were manual data entry errors. Now Thomson Reuters spends most of its time catching mistakes made directly at the source. Data transfer has always been the industry’s weakest link, and nowadays, when the volume of data seems to grow continuously, proper data management becomes more and more important. It is virtually impossible to control the flow of data via e-mail or over the phone. Third party data providers need to adapt to the rapidly changing environment to ensure the old school data quality is preserved and there are no distortions as the data moves from one end to another. It is no longer worth investing time in manual rekeying of data if the information can be easily transmitted electronically.


The industry is moving towards the full automation of the data flow,
but it still needs content professionals.



Beyond the Hype: FinTech at KNEIP

by Armann Gudmundsson
Regulatory Reporting Team Leader, KNEIP


We are experiencing exciting times in our industry as technological disruption is all around us. The financial industry is in its nature a conservative industry and typically a late adopter of new technology. In spite of this we have seen many waves of changes over the past few years where technological innovation has been in the forefront to pave the way to achieve massive compliance requirements across the global markets. This transformation could not have been achieved without technology as the enabling factor.Now we are observing developments that truly have capabilities to be quite disruptive to the current market models. One of the most interesting innovations likely to disrupt the financial sector is Blockchain. This is an innovation at the transaction level, the very birth of each and every data chain. With the disruption that far upstream every single stakeholder in the industry value chain is likely to be impacted in one way or another. We are already aware of the technical potential and how vast it reaches. But it remains to be seen in exactly what way and to what extent its impact will be felt.

All industry stakeholders are confronted with the same two questions to answer: how to survive in a changed world, and then what is the winning formula to be able turn this threat into opportunity.


Looking from the point of view of the Gartner Hype Cycle we are currently situated at the point in the curve where the hype and over-inflated expectations are at their height of exaggeration. We are moving somewhere up the curve from the Technology Trigger towards the Peak of Inflated Expectations.

The challenge that the industry faces right now is to closely track what is happening without getting lost in the hype and losing direction. Technical capabilities and commercial viability do not always go hand in hand, and the role of KNEIP is to identify the market social agreement and master the practical application of prevailing technology in a way that best serves and supports our clients’ business models.


Questioning the status quo, looking for improvements and making them happen is deeply engraved in the KNEIP DNA. In the twenty-year history of the company, we have reinvented ourselves many times over. For example, in the days when reports were printed by the thousands and shipped all over Europe, we found a way to save shipping costs and time for our clients by using local printers to print the reports. We did this by transferring the print layout files via modems to graphics houses. We were amongst the first to innovate in this way, using technology to revolutionise international printing and distribution. The competitive edge is and has always been to be at the right place at the right time for our clients. We are no strangers to taking on big challenges, and we are excited about the future.

It has always been the hallmark of KNEIP to understand the needs of our clients and how best to support them. We are the independent tech-based service leader in data management and reporting for financial products. We have been a sustainable business partner for our clients for the past two decades and we are already exploring how to take advantage of these emerging technologies and experimenting for the future.

Armann Gudmundsson, Regulatory Reporting Team Leader, KNEIP

Agility, Innovation, Empowerment

Throughout the whole fund lifecycle, from first registration to its liquidation, fund managers need solutions that repond to the many regulatory requirements and market demands placed on fund data and documents. Focusing on automation and industrialisation of operational processes is what enables us to reduce risk and help our clients to be more efficient and operationally effective . On top of our system solutions, we provide strong service teams who have the domain expertise needed to close the loop.

In 2014, KNEIP undertook yet another major project to prepare themselves for emerging technological changes by kicking off a massive overhaul of all our IT systems including both infrastructure and all applications running on them. Our goal is to transform our platforms and services to support and take advantage of emerging technologies.

What we emphasize in our approach is the importance of taking this journey side-by-side with our clients, making sure our value proposition remains closely aligned with their needs, and helping them succeed in a changed world. Systems with intuitive, user-friendly interfaces with strong dashboarding, running on a state-of-the-art backbone, remains the core of our approach to innovation. The role of KNEIP is to ultimately empower our clients. We look forward to continuing to do so, whatever will be the future technological landscape.


FinTech has always been at the heart of what
makes KNEIP unique. It’s in our blood!



A path full of pitfalls

by François Genaux
Partner, PwC
and Benjamin Gauthier
Director, PwC

While there are still discussions ahead of the implementation of the KID under PRIIPS standards from the recently issued consultation paper (e.g. true applicability to all products impacted, capacity to manage the deadlines while final guidelines are not available yet, etc.), a close attention could be paid on three sections: risk, performance and cost.

The SRI puzzle

To compare risk levels between products, an indicator ranging from 1 to 7 has been defined. By looking into the details, it is probably fair to say that designing the Summary Risk Indicator could become somewhat of a scavenger hunt. The SRI aims to aggregate two dimensions in one score: market and credit risk. For market risk, 5 categories have been created based on product features. Depending on the assigned category, the methodology may vary: qualitative, quantitative or both. As an illustration, Alternative Investment Funds (sold to retail investors), will have to follow quantitative methods, i.e. Cornish-Fisher VaR based on 5 years historical data; or simulated VaR using a bootstrap method with at least 10,000 simulations. This totally differs from 1) previous regulation in place such as UCITS KIID 2) industry commonly used practices. Fortunately for manufacturers, the path to credit risk will be easier: it will mainly rely on extend ratings!

Performance: Be reasonable!

In finance, performance is usually understood either through historical metrics such as returns, alpha, sharpe ratio or as expected annual return. Same goes for KIID, where performance is a histogram of past returns of the fund. Again, PRIIPS innovates with the requirement to disclose 3 forward-looking scenarios on different holding periods: favourable, moderate and unfavourable. They have to be based on different reasonable assumptions of market conditions. In the consultation, reasonableness is defined by deriving the assumptions taken from the analysis of observable (historical) market data of the financial factors impacting the product’s return. In a nutshell, telling the future by looking at the past through different lenses. Nothing new, but how does one assess the reasonableness of each scenario? How will the industry cope with competition on the design of hypothetical performance?

François Genaux, Partner, PwC and Benjamin Gauthier Director, PwC

Are people redundant? The Lipper story

Last but not least, the cost section of PRIIPS goes very far. One of the obstacles will be to identify and properly include the costs. For instance, the structurer should disclose the implicit cost related to structured products sold by computing the difference between the fair value and the actual transaction price. Transaction costs will now be included (as opposed to the UCITS KIID) and should be assessed based on the last 3 years. And these are but a few examples.

With only 11 months to prepare, and based on the above descriptions, this heralds a real challenge (which supports what has been described earlier like how to deal with: listed derivatives, “Fonds dédiés”, the indirect impact on the fund industry of Insurance products in scope, etc.).

In that context, there will be a clear need for support from both technical and business experts. Experienced players like KNEIP are well equipped in terms of tools and skills to assist clients to face this new regulation.


Impact and complexity of PRIIPS should not be underestimated. Risk, performance and
cost requirements go far beyond existing regulations and market standards.


Insurer regulation,
Asset Manager

The impact of Solvency II
on Asset Managers

Responsible des Solutions
d’Investissement Dédiées, Luxor
Deputy Head of Financial Engineering,
ETF & Index Funds

Solvency II is definitely a game changer for the asset management industry, one of the most critical impacts being the focus placed on building a comprehensive attitude towards Solvency II investors. Solvency II indeed has impacts throughout the entire investment process and client relationship. Asset Managers now must be able to incorporate the Solvency II Capital Requirements into their investment solutions, be able to explain its implementation, and deliver the required reporting in reduced time frames.

SCR’s impact on product

Under Solvency II, Asset Managers will need to find ways to propose innovative investment solutions that take into consideration the Solvency II Capital Requirements (SCR). Since the beginning of 2016, all new investments made by insurers are fully subject to the SCR calculation, and investors expect their asset managers to come up with solutions to limit the SCR cost.

In particular, Lyxor has developed investment solutions enabling insurers to reduce the capital cost (or SCR) associated with equity investments and certain investment funds:

  • For equities, as a liquid OTC or regulated market with protection is available, a product offering a combination of equity investments with protection (through options) enabling a reduction in the SCR cost (typically from 39% to 17%) and in the risk per unit of capital exposed to equities. In addition, this approach is based on the insurers’ equity portfolio and the specific characteristics of each insurer (cost of capital, equity market performance expectations, etc.), without modifying any strategic or tactical allocations. Such solution comes as active funds or as ETFs.
  • For absolute return or long only investment funds, a portfolio insurance technique has been developed that enables the SCR to be calculated in accordance with regulatory constraints at its correct level (in terms of Value at Risk) which, typically, for these asset classes is 20% rather than 49%

Clear explanation of implementation

Solvency II not only poses the challenge to Asset Managers to create products that integrate its SCR requirements, but it requires them to give adequate explanation on practical implementation of the directive, such as the Grandfathering clause.
The Grandfathering clause enables limited SCR costs for investments made before 2016. There has been significant appetite from investors for investment vehicles with low turnover rates such as index funds and ETFs in order to obtain most benefits from the Grandfathering clause.

Stock Market Indicator

The cost vs. risk balancing act

The Solvency II directive places on insurers a minimum capital requirement in line with the risk sensitivity of their balance sheet (assets-liabilities). The calculation methods for this capital requirement are defined by regulation and ultimately entail a significant capital cost for certain asset classes—particularly equities and some investment funds. In addition to the fact that the calculation methods place a significant cost on certain asset classes, this cost is not necessarily in line with the reality of the risk inherent in investing in such assets.

Transparency an advantage, standardisation a must

Discussions with clients, peers and professional associations reveal that expertise on Solvency II is still quite heterogeneous. Many stakeholders have their own interpretations, reporting templates, timeframes, etc. Hopefully though, markets standards will emerge that will gain recognition and adoption from the entire industry. Initiatives such as the Tri Party Template from the Club Ampère which offers a simple and intuitive way to report the investments under Solvency II, are now recognized in many countries and accepted by most investors.

While some portfolio managers struggle with legal issues on confidentiality, others have based their activities on a commitment to transparency. For Lyxor, this commitment went into the building of tools that enable them to provide Solvency II quarterly reports since 2014. Being active members of the Club Ampère working groups, they also help in the design of the most appropriate way to report certain investment instruments in full compliance with the directive.

Reporting as a competitive edge

Strict reporting requirements to insurers require Asset Managers and/or asset servicers to deliver comprehensive reports for Pillar III—in very short time frames. The ability to fulfil such requirements is becoming a growing differentiating factor within the industry. While some asset managers opt to invest in internal solutions for this reporting, others turn to specialised service providers for help in gathering the required information and supplying it to insurance companies. Pillar III also creates a competitive edge, as some market participants will be tempted to pass on the costs implied by Solvency II reports to their investors, while others will find ways to absorb these costs elsewhere.

Companies such as Lyxor have ensured that they can meet the needs of its insurance-company clients in connection with the Solvency II Directive well in advance of its effective implementation. Working in close collaboration with insurers and the authorities, they are proof that practical solutions in terms of reporting requirements, transparency and investment solutions are possible.


Solvency II encourages asset managers to anticipate insurers’ needs in their investment process and client relationships.In that respect, Lyxor is a case study in client reporting and investment solutions which reduce Solvency capital costs.



Regulatory Convergence for an
efficient Capital Markets Union (CMU)

by Geoffroy de Lamalle
CEO, eProseed

Since the financial crisis, many large regulatory reforms have been introduced such as: AIFMD, EMIR, MiFID II, MIFIR, UCITS V and recently PRIIPs just to name a few. They represent a clear path toward enabling better systemic risk monitoring and delivering a high level of investor protection, both being essential to reduce barriers and fragmentation between national capital markets and to achieve the ambitions of the CMU.

Yes, a successful CMU based on a single capital market in the EU, will be a major attraction for investors, which should in turn create more jobs and stimulate economic growth.

While policy-makers and regulators have almost finalized work on the detailed implementation rules, asset managers will need to dedicate energy, time and resources to its implementation. One could also expect more intense scrutiny from regulators as they shift from rule-making to enforcement mode.

Geoffroy de Lamalle, CEO, eProseed

But are National Competent Authorities (NCAs) really prepared?

So much new legislation has numerous major implications for NCAs and the subsequent planning of supervisory convergence work:

  • It can bring challenges for NCAs in terms of identifying and authorizing a new population of regulated firms, where the scope of the regulatory perimeter has been expanded
  • It can require the acquisition of new technical expertise in unfamiliar areas, and bring other challenges in terms of prioritizing the allocation of resources to new as against existing responsibilities
  • Questions are likely to arise from market participants and from NCAs themselves as to the precise standards to which regulated firms are to be held accountable, and how those standards apply in specific situations, not all of which may have been envisaged when the legislation was prepared
  • Legislation can itself stimulate changes to firms’ business models and activities. NCAs need to be aware of such changes and consider whether a response is needed. A good example of such a situation was the development of new business models following the implementation of MiFID 1
  • New legislation can also provide NCAs with new powers and tools which may prompt or enable a reflection on whether new approaches to supervision are desirable or necessary
  • From an IT standpoint, electronic exchange formatting can itself remain a key challenge on the short and mid-term. Indeed, while ESAs are working together to define electronic filing standards, each NCA use its own filing protocol, leading to a headache for market participants. Furthermore, NCAs have their own internal challenges in collecting, archiving and processing so much data.

For the objectives of the CMU to be met, a single rulebook and standardised electronic exchange—that is applied in a predictable way across the EU—is of critical importance.


Market participants will have to invest heavily on their regulatory compliance, and leverage regulatory filling providers such as KNEIP, to ensure they can sustain the large variety of electronic exchanges with NCAs.


Chief Information Officer, KNEIP

The main driver of prosperity in a society is productivity. Many IT innovations were conceived to help companies improve their productivity and yet we’ve seen a decrease in performance from the early 70s until today, reaching a stagnating 0% nowadays in the majority of the European countries. The way people feel at work is also affecting productivity. In Europe, depending on the countries and sectors, only 11% to 23% of the workforce is engaged, leaving more than 57% unsatisfied at work and 73% who do not go the extra mile, and this despite companies’ initiatives to motivate employees such as team building events, celebrations, leadership development programs and trainings. Moreover, 26% of the European workforce is actively disengaged, meaning they also act against the interest of the company.

A little bit of History

What is the common root cause for this decline in productivity and increase in workforce unhappiness and disengagement? It is the way companies have organised themselves over the last decades. They started by competing based on a cost strategy with a functional structure or on differentiation strategy with a segmented structure. When this didn’t work anymore, companies decided to mix both strategies, adding the segmented structure to the already existing functional structure to ensure focus. On top of that they’ve added more requirements, more key success factors based not only on cost and quality but also global consistency, local responsiveness, speed, reliability, innovation, efficiency, compliance, business development, risk management, and every time there was a new requirement they kept the same approach by developing dedicated structures and matrices. They have tried to solve the new complexity of business by becoming more complicated.

Jean-Luc Brach Chief Information Officer, KNEIP

How are we learning these lessons at KNEIP

Given this insight, we felt that to improve our productivity we needed to first empower and train our management to focus on getting their people to do what they wouldn’t spontaneously do, and know their organisations. Then, the surrounding environment must enable them to perform that role.

We’ve recently deployed a series of technologies with the goal of improving the engagement and cooperation of our team members. We start by providing the right tools for the right jobs: surface pro/tablets for Sales and Relationship Managers, iMacs for developers and Marketing Team, a mix of laptop/pc for everyone else, and iPhones as the standard corporate mobile device, used by more than 50% of the company. Taking into consideration the digital age we live in, we also enable managed access to social media at work.

We have state of the art meeting rooms including wireless interconnectivity, segregated fast Wi-Fi, new equipment with lower power consumption, power saving traffic detecting lights across the office, intelligent blinds and heating systems, all following a GreenIT policy.

To help our team members enhance productivity, we are moving from menu-based applications to intention driven applications, which involves rebuilding core apps and creating new ones based on what users want to accomplish rather than traditional menu structures. We also provide dashboard reporting on exception management using industry tools like Oracle BI, which enables managers to optimise their time by focusing only on exceptions and singularities. Lastly, we use the latest software engineering tools combined with a pragmatic approach to development, leveraging DevOps, improving the relationship between Operations and IT by advocating better communication and collaboration throughout the organisation.


The only way to deal with more complexity is to build organisations that better use the intelligence of their people and this can be achieved taking into consideration three multiplier effects: leadership, cooperation and engagement.

When Brush


CEO, FundRock Luxembourg S.A.


Jean-Jacques, you mix classic painting, pop art and street art in a style that is revolutionary. From where did you get the inspiration to mix such different styles?

We are living in a digital age, where everything is allowed in art. That is very inspiring to me. I can very easily mix different styles and above all, these styles are my favourite ones. I have a lot of freedom because I can find pretty much anything online and can access exactly what I need just with a click of a button.

Revel, you have a passion for African art.
Where and how was this passion born?

Let’s start with passion for art itself. I suppose it’s in my blood, as my great grandfather was William Frederick Woodington. He was born in London at the start of the last century and created some famous artwork, now displayed in St Pauls and other prominent historical sites. The most famous and noticeable is on Nelson’s Column at the centre of Trafalgar Square, and represents the battle of the Nile. Art continues to run in my family, my aunt is an African landscape and wildlife painter, my brother is a keen African photographer, and I grew up on a farm with many san people paintings in the Motopo granite hills. I was raised in South Africa during the apartheid era and as a lot of the strife, conflict, and struggle was expressed through art, this had a big impact on my early years and I certainly have a great empathy for the hardships endured.

Jean-Jacques Deleval and Revel Wood observing a Banksy piece in the KNEIP’Art gallery.

Jean-Jacques, your technique involves starting to paint with an electronic pen on a screen before beginning to work on the canvas. How did this way of working first come to be, and how does that influence your creativity?

In the beginning of my career, I used to mix my own powder and paint, prepare my own canvas and even my own brushes. I was doing what all ancient masters did for centuries. But at a certain stage I realised that was quite an archaic way of working and technically there was nothing new. At the same time I was always interested in computers and new technology, so when I realised all the potential that resided there I didn’t hesitate! The first time I used technology in my paintings was back in 1990, when I printed for the first time on canvas. The painting was a huge Michael Angelo full of paint stains and graffiti. Technology allows you to do everything you want as quickly as your thought, and this is fantastic! And above all, I don’t need to clean my brushes!

Art and business are different in their essence: business is all about clarity and measurability, but art often embraces mystery and multiple interpretations. Art and business are similar in their need to have the discipline to produce striking work, the skills to engage people, and the ability to bring enough income to keep the activity going over time. How do these two worlds interact in your particular domain of expertise?

RW: Many parallels can be found between business and the arts. The core driver behind what carries business and what drives a successful artist is passion, love for what you do, and keeping what you’re doing alive by continued curiosity and investment of time and energy. If you look at art, having an eye for detail is important and this is equally true in business. I believe good artists can see something that others don’t see and in business the same principles apply. One of my key principles is diversity and inclusion (especially taking into consideration my formative years in South Africa). Business that succeed and prosper embraces diversity: different ideas, different cultures, different ways of thinking, and bring them together to create something that operates as a strong cohesive unit.


On the other hand, art is an expression of diversity, culture and style, often a myriad of colours, textures and techniques that come together to produce great aesthetic value. Another parallel is the need to innovate and evolve; art and business have certainly come a long way in the digital space. The best example is Jean-Jacques’ work bringing together traditional brush techniques with modern digital tools, likewise business today is becoming more and more based on highly complex data and information technology. It is important to invest in technology and more modern ways of doing things. Similarly, art has evolved from big old canvas to new ways of expression so I think there is a significant number of similarities and overlaps.

JJD: I agree with everything that Revel has said, and as he touched the artistic side, I will talk about the business side and art speculation. There is a new phenomenon with speculation on modern and especially contemporary art. Nowadays, art and speculation go hand in hand with country economies, and this brought about by globalization. Before, you used to go to a gallery, liked a painting and left with it. Nowadays you have international fairs where people buy paintings over the phone, serving as intermediaries, and the prices rise so high that only a small part of the population can afford them, or even play with this kind of speculation. And this is where money and art are getting together.


Art and business can seem like very different fields, but are driven by the same passion,
hard work, innovation, and attention to detail.



Fund Data Publication

Among the hallmark characteristics of a sound investment fund operations is application of best practices of publication requirements for your fund information. In the post credit crunch era, where trust is still to be restored among investors, few things will serve your brand better than demonstrating character trades of strict adherence to regulatory compliance. Furthermore an attitude of going the extra mile to ensure transparency of your products performance and ensuring investors are at all times fully up to date to make sound investment decisions.

Local requirements can be different from one country to another but the key principals remain the same. Making sure all up-to-date key documents and performance related information are easily accessible and clearly presented in a easy to understand way will represent your brand well at the same time it paves the way for investors to make investment decisions on your products.

Net Asset Value Publication

In recent history we have seen deregulation in some markets of Net Asset Value publication requirements in print media and electronic platforms. Regardless of regulators easing off on stern publication requirements fund managers have predominantly sustained their position on the importance of publishing their NAVs. As competition for investors’ attention has continued to grow more intense at an ever greater rate so does the necessity to keep a visible profile and strong brand perception.


The UCITS regulations dictate that funds must publish a prospectus, annual and semi-annual reports, and a KIID (Key Investor Information Document). The KIID will soon be replaced by the PRIIPS document which is also a pre-contractual document. The PRIIPS will be subject to similar publishing requirements but even more intense requirements for updating events are introduced. Non-UCITS KIIDs are a requirement in most markets, predominantly when funds are marketing to retail investors.

Regulatory requirements regarding publication platforms and methods are less clear than for the UCITS funds. But there is no need to reinvent the wheel and look too far for suitable guidelines. Adopting the UCITS KIID requirements is a practical approach to fill the gap where the regulations are not exhaustive.

UCITS IV Directive permits the KIID to be published in a "durable medium" or by publishing on a website. Investors are entitled to a paper copy of the KIID free of charge upon their request. An up-to-date version of the KIID shall be made available on the website of the investment company or the management company at all times.

Importance of Published Information Consistency

Consistency of published data across different documents and medium is a very important element to keep in mind. Therefor it is important to consider your service provider ability to provide rigorous quality controlling capability across different platforms of publications. It is therefore not adequate that each single platform performs their quality controlling.

The significance of solid governance and quality assurance across different platforms and media will increase at a significant rate in the coming years. New innovative solutions enabling data processing and analytics in a very extensive and user friendly way adds pressure on asset managers as inconsistencies are more likely to be picked up as the ease of scrutiny increases. Service providers like KNEIP, offering coordination services which centralize data governance across all major platforms without prejudice, are a very practical solution to avoid being caught with discrepancies of published data.

NAV Publication Considerations
In Different Markets

UCITS may publish the issue, sale, redemption or repurchase price in the official gazette “Amtsblatt zur Wiener Zeitung" or in at least one newspaper with nationwide circulation in Austria, in printed form free of charge at the registered office of the management company, or on the management company’s website and, where applicable, on the website of the distributors, including paying agents.


UCITS have to publish the net asset value of their units in one or more daily newspapers disseminated in Belgium, or in any other publication accepted by FSMA. The publication of the net asset value exclusively on a website, without any other form of publication, doesn't guarantee suitable distribution.


UCITS have to publish the net asset value per unit or share they issue in an appropriate manner.


UCITS must publish issue and redemption prices in the appropriate media, e.g. newspapers published in Germany, a durable medium, the Federal Gazette, other electronic information media such as the website of the UCITS management company or fund platforms.


The net asset value may be made public on the management company's website.


UCITS funds have to publish their net asset values in an appropriate manner that ensure easy consultation, e.g. the management company's website.


The UCITS have to make the issue, sale, repurchase or redemption price of its shares/units available publically in an appropriate manner. The management company's website alone is sufficient.


UCITS funds have to make their net asset values available publically (e.g. on the management company's website).


UCITS have to publish the net asset value on the management company's website.


At least one distributor has to make the net asset values of the shares or units marketed in Spain available by electronic means.


Price of units/shares of UCITS funds may be made available on the management company's website.


Prices of units/shares of UCITS funds may be made available on the management company's website.


UCITS funds have to publish the offer and redemption prices or net asset values in an appropriate manner that may include newspapers, telephone hotlines and websites.


UCITS management companies have to publish the value of a share/unit on, for example, its website.