Compliance issues have caused 81% of alternative fund managers to lose investment mandates or clients in the past three years, according to research from Ocorian and Newgate Compliance.
The pool of managers in the study, which hold near $123.3bn in assets under management, do not seem to think improvement is on the horizon, with 92% expecting the level of compliance breaches to increase over the next two years.
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Aron Brown, head of regulatory and compliance at Ocorian, said: “Compliance and risk teams and the expertise, insights and rigour they provide are front and centre to the bottom-line success of every fund manager. They hold a heavy weight of responsibility, and our research shows that failure to deliver can ultimately lead to lost investment.
“But compliance and risk teams must have the right investment and support in order to be able to do this – particularly when facing the challenges of an increasingly regulated operating environment. This could take many different forms, from investing in people and training, technology and systems, or third-party specialist providers who can provide a broad range of compliance services that are bespoke to individual needs.”
Nine out of 10 alternative fund managers also reported increased conflict within the fund management team and compliance team within the past two years, which is expected to rise in the following three years.
“This conflict emphasises how important the three lines of defence are to a business and how the FCA’s emphasis on them being separate and cohesive is key – when they aren’t this level of conflict arises,” Brown said.
Ocorian and Newgate outline the three lines of defence as creating policies for compliant businesses and providing training; providing oversight from a team or compliance officer; and independently auditing the company to identify gaps and ensure roles are appropriately separated and defined.
