FCA's Annex IV reporting system back up and running

The UK regulator says it will be more lenient to tardy alternative investors as it works to resolve Annex IV glitches

FCA promises leniency to funds over Annex IV glitches

The UK Financial Conduct Authority's (FCA) online reporting system Gabriel, which crashed on the day of the deadline for alternative investors' Annex IV reports, is back online and ready to accept the receipts and filings that outline asset holdings, leverage ratios and key portfolio exposures, among other data.

At the time of writing, the FCA's website said Gabriel, which accepts reports required under the alternative investment fund managers directive (AIFMD), was still down. But an FCA spokesperson says Gabriel is in fact back in operation. It is understood the cause of the outage was the sheer volume of alternative managers seeking to file reports by the January 31 deadline.

Last week, hedge fund managers reported delays as the FCA warned on its website of "ongoing systems issues with Gabriel, which we are working to resolve". The FCA has also realised that some alternative investment fund managers (AIFMs) did not receive a product reference number (PRN) until January 1 or after, leaving them unable to submit their transparency reports.

One London hedge fund manager with $1 billion in assets under management says: "It was offline Thursday and Friday. We were ready to lodge our reports but had to notify the FCA their system was down. I guess everyone at the last minute overloaded the system."

Last week the FCA said: "We will not take any enforcement action against firms affected by these issues for a failure to report."

For those without a PRN at the start of the year, the FCA says "we will not take any enforcement action against that firm for a failure to report for that AIF [alternative investment fund] by the due date.

"However this is provided that the AIFM submits its report to us for that AIF as soon as possible after receiving its PRN for that AIF and, in any event, within a month of that date plus an additional 15 days for an AIF that is a fund of funds."

As the FCA suffered problems in processing Annex IV reports, fund administrators say that they reckon a small proportion of AIFMs would not be ready by the January 31 deadline.

John Vaughan, head of fund accounting at BNP Paribas Securities Services, says: "I would be surprised if under 5% of [AIFMs] miss the deadline." Most have simply gone to fund administrators or service providers, for whom aggregating the figures is an automated process.

Mario Mantrisi, executive board member of software provider Kneip, reckons that about 1% of AIFMs will miss the deadline, but adds that it is hard to estimate. "It is certainly not a catastrophe," he says.

There are reports of hedge funds that only made their first approach to service providers to conduct reporting for them in the first week of January. Those expected to not be ready include, for example, small funds that discovered there was a technical issue too late. Tim Thornton, chief data officer at fund administrator Mitsubishi, thinks that overseas funds are less likely to be ready.

Thornton says: "The guidance has been a moving target over the past year or so and certainly there has been less awareness overseas than in Europe. We were surprised how little understanding of this [among small funds] the last time we went to the US."

Tardy AIFMs who file reports past the deadline may have to pay an administration fee of £250, says BNP's Vaughan, and consequences can become more stringent. Market watchers feel confident that the FCA will give some leeway to AIFMs, however, owing to the FCA's own glitches.

"A fee would be unfair because [the regulator] would have to admit there were problems on its side too," says Mantrisi. Some blame the FCA for producing question-and-answer papers three months before the deadline.

In the lead-up to the reporting deadline, hard-to-value illiquid assets have caused problems for providing valuations that both hedge funds and fund administrators can agree on. Level III-type securities, such as asset-backed securities, exotic debt instruments, insurance derivatives and infrastructure, have prompted the most quarrels.

One hedge fund investor said: "There are a lot of internal conflicts of interest in how [administrators] debate the prices of illiquid, hard-to-value Level III-type securities if, for example, there is only one market-maker and [there are] questions on whether the market-maker could really sell the whole bucket at the current market price.

"There are firms that will beat up their administrator every month over pricing but the administrator at the end of the day would like to retain the contract."

AIFMs with different fund administrators – one for private equity funds, one for hedge funds and so on – have faced complications, as each administrator might use differing methodologies to value illiquid assets.

Mantrisi reckons that national regulators may face challenges when aggregating assets under management as different methodologies are used. "You might face problems when you consolidate the data," he says.

Different methodologies used to tot up the valuation figures have caused problems in the US, where Securities and Exchange Commission officials have found hedge fund data to be deficient. Andrew Bowden, director of the office of compliance inspections and examinations, has found hedge funds "flip-flopping" their valuation processes, so that measurements change from quarter to quarter so as to yield more favourable performance results.