Two-thirds of alternative fund managers have faced governance-related fines or sanctions in the past two years, according to research from Ocorian, an administration and compliance service provider for funds, and Bovill Newgate, an Ocorian company and specialist financial services regulatory consultancy.
Despite 93% of fund managers claiming that their boards possess the right mix of skills, 65% have still experienced penalties related to governance. This growing scrutiny has prompted 90% of respondents to anticipate a significant increase in their focus on governance over the next two years, with nearly a third expecting a dramatic rise in attention.
Tougher risk controls curtail hedge fund trading activity, research shows
The survey, which involved over 100 senior executives and compliance professionals, highlighted the increasing pressure on firms to improve their governance frameworks in response to evolving regulatory demands.
The researchers have proposed an approach rooted in a “three lines of defence” model to tackle risk and compliance challenges. The first line establishes frontline processes and offers training to staff, while the second line empowers a compliance oversight function to monitor and support adherence to regulatory obligations. The third line ensures an independent review of the firm’s anti money laundering framework through annual audits.
Paul Ford, head of regulatory and governance at Bovill Newgate, commented: “Regulators hold the board responsible for effective compliance with the regulatory framework. The board must demonstrate integrity and sound judgment, especially in today’s increasingly stringent regulatory environment. The board also must organise and control the firm effectively, including establishing and maintaining appropriate and effective policies, procedures and controls which include appropriate and effective governance frameworks for decision making. Despite many firms claiming they are good at governance, they are still seeking additional support as regulations evolve.”
