ume was awarded 2022 Regtech of the year at the European Fund Summit on 1st December 2022. The award is a recognition for the success of the ume platform that now connects hundreds of investment fund managers with thousands of distributors in 100 different countries.
ume’s Chief Operation Officer, Rolf Bachner, speaks with Pascal Bouvier, Managing Partner at MiddleGame Ventures, about the story of ume’s success. Being product-led, as well as community and customer-centric, has enabled ume to become the platform of reference for the exchange of due diligence information between investment fund managers and thousands of their counterparties across 100 countries.
Asset managers are required to perform initial and ongoing due diligence on their distribution partners to ensure compliance
with regulations.
Investment funds may only be sold:
Clearstream is enhancing its Fund Centre platform by expanding the KYD offering to help asset managers to fulfil their regulatory requirements: In addition to the KYD due diligence questionnaire and corporate KYD documents already provided by Clearstream Fund Centre AG (formerly “Fondcenter”) itself, asset managers will now also have the option to access the KYD information from all or pre-selected distribution partners connected to Fund Centre.
Digital KYD solution
In this context, Clearstream is proud to be able to offer with Fund Centre a centralised 24 hours access through a digital platform to the required KYD information. Additionally, a standardised KYD due diligence questionnaire is made available and updated on a yearly basis with direct input from asset managers and in accordance with industry standards and applicable regulations.
This digital solution is supported by our partnership with ume, a leading KYD platform. That partnership provides an open solution that can also be used by the Fund Centre participants to leverage the ume solutions for flows that are outside of the platform.
Bernard Tancré, and CEO of Clearstream Fund Centre AG, said: “Our Distribution Support platform Fund Centre is now able to offer an extended KYD due diligence service providing a look-through view on the distribution partners connected to Fund Centre.”
Laurent Denayer, CEO ume added: “The partnership with Clearstream will further enhance our position as the leading platform for exchanging due diligence information between asset managers and fund distributors. The new users will further increase the network effects and bring significant added value to all participants.”
Franklin Templeton is pleased to announce its partnership with UME, the reference platform for the exchange of due diligence information, serving investment managers and fund distributors in 87 countries.
The collaboration brings together a powerful combination of deep business and innovative technology skills to help Franklin Templeton, its clients, partners, and fund distributors through successful digital transformation.
This partnership will also allow Franklin Templeton to automate the exchange of due diligence information and automate regulatory compliance with its partners.
In recent weeks, we have highlighted the multiple benefits of investment managers collaborating on distributor due diligence, rather than each having to compile, distribute, collect and analyse its own questionnaire. You can find our previous articles on the financial and resources benefits, as well as the quality and compliance improvements to be gained by using the ume platform, here.
With regulators, particularly in the EU, looking to increase investor protection and the increased focus on compliance with money laundering rules, the industry gains from working together, through a more efficient process and better results that lead to reduced risk. Regulators want distributor due diligence questionnaires to serve as an education, setting a bar for the whole of the industry from producer to distributor.
Collaboration, in the form of investment managers agreeing on the questions to ask their distributors and sharing an online platform to share responses, increases the quality of the answers they receive and helps distributors worldwide to improve their own practices. The collaborative approach also improves understanding of the legal requirements and what needs to be done when DDQs reveal gaps or distributors that represent too much of a risk when benchmarked against shared standards. For distributors that do not improve, eliminating them from distribution networks should improve trust and standards over time.
As more fund groups and distributors join the ume platform, the greater the added value throughout the chain. That is important as the industry faces new challenges, some in the very near future. We expect fund groups to place greater emphasis on ESG issues in their distribution chains. As they and their fund managers face increased scrutiny and reporting on climate risk, they will want to ensure that distributors understand and accommodate ESG concerns and do not greenwash their credentials, nor the products they offer.
Already ume works actively with the world’s largest fund management groups and the largest number of distributors worldwide of any due diligence platform. The number of distributors who receive and respond to ume due diligence questionnaires will have tripled this year. It’s a fast- growing club in which everyone benefits from membership.
If you’d like to find out more about Club ume, we’d love to speak to you.
Competition is the lifeblood of business – but not always; sometimes it does not make sense. It can often lead to better outcomes when natural competitors work together for their collective benefit. That applies to the task of conducting distributor due diligence, where sharing the burden of deciding what to ask distributors makes everyone a winner.
So far in this series on Know Your Distributor, we’ve looked at the time, cost, quality and resource benefits of harmonising distributor due diligence to ensure the right questions are asked – once – of the right people to ensure ongoing compliance.
Another aspect of the ume platform and process encourages our investment management clients to share their insights and expertise that has nothing to do with the competitive advantage they may enjoy in delivering returns for their investors.
By sharing their understanding or interpretation of regulatory requirements and
their experience of compliance, all users of the platform access a common store of knowledge of best practice.
Collaborative approach
Our collaborative approach brings fund groups together to reach a consensus on what questions distributors should be asked in order to meet asset managers’ due diligence requirements. The process involves collective decision-making and sharing of insights, allowing every player to improve the quality of their compliance. There is a real sense of working together to do things better.
In effect, ume clients use crowdsourcing to determine the most effective distributor questionnaire by agreeing on the required due diligence standards and the information that must be obtained from their intermediaries.
The curation process allows the platform’s users to assemble the most important questions to ask their distributors, providing a more carefully calibrated questionnaire for each distributor, depending on their particular characteristics such as size or cross-border reach. The process is so successful because participants understand the benefits it can deliver both to themselves and other asset managers.
Industry consensus
When industry peers agree on the approach to take and quality threshold
expectations, distributors know they must respond fully and with thought, because they are the product of an industry consensus. Answering precise questions just once is easier, quicker and leads to richer responses when distributors know they need to complete a single questionnaire in an online format that they can easily follow, rather than a succession of queries from each asset manager’s own, different list of questions.
The network approach facilitates follow-up activity. Investment managers can query answers that don’t seem quite right, whether an authorisation issue or details of money laundering and financing of terrorism controls. The follow-up responses are also shared immediately across the network. Often distributors will respond by reviewing and improving their own processes or structures, reducing the distribution risk for asset managers further and enhancing client protection against mis-selling – as well as shielding fund firms from the risk of reputational damage.
Our collaborative approach is a robust and tangible example of competitors working together for their common benefit. If you’d like to know how this network effect can help your own business, that of your distributors – and of your peers as well – we’d like to talk to you.
The third in our series of articles on making KYD – Know Your Distributor – work for you, your partners, clients, your brand and regulator looks at compliance automation: how to turn the due diligence questionnaire into a powerful tool.
As we have discussed previously, when investment managers agree to standardise questionnaires, it’s useful for all stakeholders. Distributors have to complete only a single questionnaire, making it more likely they will supply and update their data more quickly. Investment managers get continuous and more comprehensive insight into their distributor base.
Structuring and standardising questionnaire answers has another benefit. Instead of wading through spreadsheets, Word documents and pdfs, ume platform users have access to structured and consistent data. That enables them to apply risk-based algorithms to automate scoring and to identify outliers quickly and easily.
The number of distributors covered, and the volume of data received enable investment managers to identify patterns. A UK independent financial advisor may answer questions differently from a Swiss private bank or a German insurance company, but it will typically have a similar profile to its peers. That makes it easier to compare different types of distributor channels in other regions, and to identify outliers and abnormal profiles more quickly and where further investigation is required.
That ability is vital since reputational and regulatory risks can escalate from a poorly managed distribution network.
Typically, the ume process enables you to identify 80% of any distribution base as low risk, where distributor profiles conform to expectations and do not require further action. But what about the others? You can now focus on the 20% or so that represent a possible risk. Reducing the human workload for the distribution network as a whole frees managers to focus on what matters and deliver better results from their compliance efforts.
ume’s automated risk scoring helps our investment manager clients to quickly and proactively identify issues, facilitate further investigation and, if need be, take remedial action. Compliance teams undertaking more in-depth analysis can focus on their added value, spotting issues before they turn into a major problem. That should make your board, shareholders and, especially, regulators happy.
If you’d like to know more about how our powerful system can ease your regulatory burden through automation, we would love to tell you.
Asking a question clearly, with a single voice, will elicit a clearer answer
Everyone has too much work to do. If you’re in fund compliance, do you spend more time on due diligence questionnaires for your largest bank distributors, or on tens or even hundreds of smaller distributors where your relationship may be more sporadic? If you’re a distributor with not enough hours in the day, do you respond to the biggest global investment managers first and hope the smaller ones don’t hassle you for missing their impossible deadlines?
At ume, we have spent a lot of time looking at how we can reduce the expense and effort spent by asset management companies attempting to update their understanding of each distributor. We’ve also looked at how to reduce the typical delay in obtaining distributor responses from anything up to nine months almost to real time.
The answer seems simple, as the growing list of asset manager clients for the ume platform demonstrates. If distributor questionnaires are harmonised using a single platform, distributors will find them easier to complete and return. Creating this efficiency to the advantage of everyone involved is good for both asset manager and distributor – and especially for heads of compliance.
Everyone benefits if the fund industry as a whole asks a single set of questions, particularly as asset managers tend to use the same distributors. Eliminating mechanical repetition is a big incentive for distributors to update their information more regularly and completely.
A simpler process can eliminate the problem of outstanding questionnaires. Standardisation also negates unintended bias as all distributors can be compared on the same basis through ume’s automated risk evaluation tool. Distributors can therefore be assessed on a continuous basis and compared in a consistent way.
Deploying ume’s automated due diligence questionnaire process is a win-win for everyone. Distributors update when they need to, when an investment manager asks follow-up questions that prompts a revision to their answers, or from a regular prompt at least every 12 months.
Because the distributors are required to complete only a single questionnaire, customised for their organisational requirements, investment managers will get higher quality and more timely data, since updated information is available to every investment manager the distributor works with.
We eliminate the volume of questionnaires that distributors are required to handle, from possible hundreds to one, and reduce the likelihood of the smallest niche fund firms finding their responses are the distributor’s lowest priority.
Mutualisation of efficiencies is not about gaining a competitive advantage, but about everyone doing an essential task well. The ume platform represents a new business model, connecting not just organisations, but people, resources and knowledge, creating value and making it easy to exchange.
It’s scalable, eliminates friction and creates beneficial feedback loops for our clients in the investment community and improves the quality of data. Our ‘collaborate to compete’ approach has made us the largest fund distributor due diligence ecosystem. Saving time and cost on compliance while ensuring better quality enables our investment manager clients and their distributors to focus on their central roles in the asset management industry.
If you’d like to know how to obtain more time to spend on the important stuff, please get in touch.
Collaborate to know your fund distributors better, and less painfully
Distributor due diligence is, frankly, a thankless task for investment managers who send questionnaires out and the distributors who are asked to complete them. But due diligence is a regulatory requirement before both sides enter a relationship, and on a regular ongoing basis. Standardising questionnaires and their transmission between investment managers and distributors is efficient for everyone involved. Initial questionnaires are simpler to complete and return and updates can be more frequent, leading to better compliance with the law.
Typically, we find investment managers send out distributor questionnaires infrequently to distributors they assume are low risk. But everyone uses a different format, whether Word, Excel or PDF, and has a different set of questions. Distributors receive them by e-mail, review, circulate and return them. That’s the theory, at least. In practice many go unanswered because of the burden of what is often a highly inefficient process placed on all parties.
Asset management firms in Europe may work with anything from five to 1,500 distributors, from one-man-band independent advisers to the largest banks and online platforms. The due diligence process can require significant resources and it is no surprise that questionnaires get lost in the system or that answers are often of low quality.
At ume, we agree with you: the whole process could be much better. Cost-effective and efficient regulatory compliance processes can be a competitive advantage. A reduced need for human time and effort is good for the bottom line, and ongoing compliance reduces the risk of reputational damage and regulatory penalties. And a quicker distributor due diligence process can also speed marketing efforts and the flow of assets into your funds.
We’ve also built a digital platform to handle the questionnaires, doing away with bottlenecks like e-mail and incompatible formats. This turns a highly laborious task for distributors into a smooth continuous updating process. On both sides, the workload is reduced and maintaining due diligence compliance becomes an easier ongoing process. And because data is standardised, it is easier to compare one distributor with another.
The algorithms underlying the platform also continuously re-evaluate the data whenever any distributor updates their information and automatically adjusts the risk assessment that fund groups receive.
Better quality, more regular information makes it easier to ascertain on an ongoing basis whether a distributor is fit and proper, and the right choice for an asset manager. The process also substantially reduces the resources required and ensures more responsive compliance than the ad hoc approach of the past, as well as ensuring much greater transparency. At company level, boards and management committees can exercise their control obligations much more effectively.
If you would like to know your distributors better we’re ready to talk to you.
The Regtech sector is evolving rapidly and KPMG expects significant development in the next 24 months.
In a recent survey published in December 2019, KPMG France analysed 250 Regtechs in Europe which have been classified in 6 main categories according to their business model. KPMG then compared their respective competitive advantages and selected the 36 most promising Regtechs. ume is very pleased to have been chosen as one of the top 36 Regtechs in Europe.
The survey can be found here
Chief executive Laurent Denayer, whose regtech firm UME supplies the asset management industry with automated due diligence on fund distributors, talks to Bob Currie about mutualising information for collective advantage.
Management companies are required to conduct periodic due diligence on how distributors are marketing their funds. The second Markets in Financial Instruments Directive (MiFID II), for example, imposes EU-wide product governance requirements and obligations regarding the manufacture and distribution of products and services to end clients.
Under the Target market component of this regime, a management company must implement a product approval process that defines an identified target market of end clients for each financial instrument. It must be able to demonstrate that its distribution strategy is consistent with that target market and that all risks relevant to distributing to this target segment are assessed on an ongoing basis. More generally, management companies have an oversight obligation on the delegation of their distribution activity.
Questions and answers
Typically, this process involves sending out questionnaires, gathering in the responses, evaluating results, making follow-up calls to clarify gaps and then generating the associated reporting. The average time committed by management companies and global distributors may be 15-20 hours per fund distributor per annum. When aggregated across a management company’s full distribution network, this represents a large time commitment and cost.
This is also a burden from a distributor’s standpoint. The distributor may receive hundreds of due diligence questionnaires from management companies over the year, each monitoring similar risks but using slightly different questions and formats.
No consistent standardisation applies across this data-gathering exercise, meaning that distributors must spend time customising the same block of information to meet each management company’s specific requirements.
To streamline this process, regtech firm UME (pronounced ‘you-me’) proposes standardisation of information collection through the use of a single questionnaire. The management company can define a risk-based approach to its due diligence process, for example conducting evaluation of its “highest-risk” distributors annually and reviewing its low and medium-risk distribution agents less regularly.
Ume estimates that there are six layers of intermediation between a management company and the end investor, which can make it difficult to build a transparent, accurate view of their distribution network.
Although the information collection process becomes standardised, the management company can attach different weighting to different questions within the questionnaire, depending on its risk priorities.
By collating distributor information on a centralised platform, this has enabled ume to assemble a comprehensive global distributor database. “If an Asian fund manager wishes to distribute into a new European market, for example, or a Luxembourg-domiciled management company plans to extend sales into a new emerging market, we have a database of eligible distributors in our database that may fit their requirements,” says chief executive Laurent Denayer. These can be filtered according to a number of selection criteria.
Communitarian spirit
The principle in regtech, says Denayer, is that you should collaborate to compete. By mutualising information that provides little competitive advantage, it enables users to progress more rapidly, both as groups and as individual companies.
It has taken time for some management companies to adjust to this communitarian principle. But there may be a significant reduction in administrative overheads for those who are willing. “In October, we onboarded a new asset management client that was working to build its network to 60 distributors worldwide,” says Denayer. “The team lead was spending four days per week on this process, building contacts with new distributors and conducting periodic due diligence on those already in their network.
“On appointing our solution, they have now reduced this commitment to approximately four hours per week, enabling the company to reallocate this headcount and cost to value-creating functions”.
To create this facility, ume was established in 2017 with Laurent Denayer as chief executive officer and Oleksiy Shostak as chief technology officer. The platform was established between May and September 2017 and a prototype was ready to roll out to early adopters in October 2017. The company, which has its headquarters at the Luxembourg House of Financial Technology (see page 6), signed its first full client in January 2018. It now has information on its platform covering more than 1,500 distributors in over 55 jurisdictions.
©2019 funds europe – February 2019
On November 15th, the Luxembourg Finance Innovation Summit celebrated its 10th anniversary with more than 250 professionals. During the event, the Luxembourg Finance Awards were distributed, recognizing the best practices and solutions available in Luxembourg.
After having won in 2017 the award for Finance Start-up of the year, ume won the 2018 award for RegTech Innovation of the year. The story continues!
http://www.infinance.lu/actualites/luxembourg-finance-awards-2018-and-winners-are
With ume, know you fund distributors ! You can score your distributors, connect to your network and optimize your due diligence process.