Two-thirds (65%) of alternative fund managers have faced governance-related fines or sanctions in the past two years, prompting a significant shift in focus towards enhancing governance practices over the next 24 months, according to a study.
The research conducted by regulatory consultancy Bovill Newgate, in partnership with fund services provider Ocorian, surveyed senior leaders and compliance executives from various firms.
Despite nearly all respondents asserting that their board and senior management take governance seriously, and 93% believing they have the necessary skills and roles to manage governance risks, the prevalence of fines and sanctions suggests otherwise.
Over the past two years, 70% of these firms have already ramped up their governance efforts. However, according to the researchers, the increasing complexity of the regulatory landscape and the threat of sanctions are driving a further push.
The study has shown that 90% of respondents anticipate an even greater emphasis on governance in the coming two years, with 30% expecting a dramatic increase.
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The research also underscores the importance of utilising independent specialist risk and compliance companies to navigate these challenges. About 96% of respondents highlighted the significance of external expertise, with 55% deeming it very important. Only a small fraction (4%) viewed it as unimportant.
Paul Ford, head of regulatory and governance at Bovill Newgate, said: “An independent company not only brings specialist skills and experience that is difficult and time-consuming to recruit in-house, but also technology, software, and processes to manage complex frameworks and structures.”
As alternative fund managers look to fortify their governance strategies, Ford recommended a three-lines-of-defence approach: implementing robust procedures, policies, and training; comprehensive monitoring; and independent audit review and challenge. This method, he argued, is crucial for protecting businesses in an increasingly stringent regulatory environment.
