With little fanfare, the Prudential Regulation Authority (PRA) has issued a note on the reporting of collective investment look-through information required under Solvency II.
"While the PRA makes clear it wishes firms to submit look-through information, it opens the door for firms to discuss the scope of reporting with their supervisors."
For the purposes of Solvency II, collective investments cover undertaking for collective investment in transferable securities (UCITS) funds that most are familiar with and alternative investment fund (AIF) investments such as hedge funds and investment trust companies. The requirement to 'look through' the collective investment and report the underlying assets held is by no means simple to fulfil.
While the PRA makes clear it wishes firms to submit look-through information, it opens the door for firms to discuss the scope of reporting with their supervisors.
The PRA note sets out a number of items that firms should consider prior to contacting their supervisor and includes some useful references to the relevant regulations.
Recognising market disclosure
Encouragingly, the PRA says that it “will accept look-through reporting based on best available data and approximations, provided firms are able to demonstrate to supervisors if asked that the approximations are reasonable after taking materiality into account”. The PRA also states that genuine constraints on data should not result in firms breaching the reporting requirements. In this respect, the PRA specifically recognises market disclosure restrictions that apply where collective investments are listed on a stock market (for example, investment trusts).
A sympathetic PRA?
The look-through requirements are perhaps the most heavily criticised aspect of Solvency II reporting. The effort required to provide look-though information is considerable and there may be legal and competition disclosure constraints to consider, additional to the pure practicalities. Despite asset manager and third party engagement, many firms are still some way short of a full asset data reporting solution. The PRA standpoint, as set out in the note, appears helpful and suggests that the PRA will be sympathetic to well-reasoned practical proposals. Hopefully the pragmatic overtones of the note will be embraced by firm supervisors.