Portfolio look-through became a requirement in 2016 when Solvency II came into force. This directive required insurance and reinsurance companies regulated by the European Insurance and Occupational Pensions Authority (EIOPA) to be transparent about the mutual funds they hold in their portfolios. This process is now a necessity and a challenge for all players in the financial industry. CACEIS is therefore expanding its transparency solutions to better serve its clients.
Solvency II transparency involves reconstructing the line-by-line details of the underlying assets in which the funds (or sub-funds) are invested, in order to measure their risks and exposures. This is known as first level look-through. Additional levels of analysis may be required, depending on the details expected, if the parent portfolio's funds are themselves invested in other funds.
The concept is, at first sight, simple but the exercise can quickly become complicated for clients with a large number of valuation agents and inventories to collect. The number of lines to be reprocessed is exponential. This is why CACEIS has been offering its insurance clients the possibility to look-through portfolios for several years.
"Nowadays, the need is no longer limited to this category of investors and to the Solvency II directive alone. Transparency is necessary for many regulatory and non-regulatory reporting purposes," explains Perrine Briout, Group Product Manager at CACEIS. For example, a look-through process is unavoidable within an Environmental, Social and Governance (ESG) analysis for certain funds, in order to ensure a proper portfolio coverage rate. This is true whether the objective of use is regulatory (SFDR-Sustainable Finance Disclosure Regulation, Taxonomy and TCFD-Task Force on Climate-related Financial Disclosures for example), or linked to management decisions (exclusion policy for example). Generally speaking, financial and extra-financial analyses are converging towards this same need for transparency.
Extending the look-through solution
In order to meet the growing demand from all financial industry players as widely as possible, and to better support its clients, CACEIS has decided to increase its look-through capabilities and develop a dedicated solution. This solution can be added to any of CACEIS’ existing services. Clients will also benefit from a detailed inventory, in a usable format, thus adapting to their needs now and in the future.
“The entire post-trade process will therefore gain granularity, whether for management, meeting regulatory expectations, or risk, legal and tax functions, etc.” adds Perrine Briout. CACEIS has thus chosen to satisfy as many as possible, in a context where the possibilities for use are almost infinite.
The aim is to offer a service in which clients can choose the level of transparency they require, as well as the format in which they prefer to receive their information. Indeed, via a simplified subscription, they will be able to order their inventories, with a degree of transparency suited to their needs. Similarly, if they so wish, CACEIS will be able to aggregate all the lines in the portfolio by ISIN code. This will reduce the number of lines displayed by calculating the weight of each underlying asset within the parent portfolio.
"As a valuation agent for clients' portfolios, CACEIS is positioned as an obvious player in this value proposition. Our size and market presence allow us to capitalise on several of our internal tools and to consider the industrialisation of the process: from entering into relationship with external valuation agents to the reprocessing of the data, including contracting with the various asset management companies and information collection" says Perrine Briout. The entire operational chain, which usually is a heavy burden on clients' time and resources, will soon be taken over by CACEIS.
Our ambition is to be able to serve our first service requests in the coming months and we are currently working with business experts on the technical integration of this new solution into our systems. Several dedicated workshops are also underway with the support functions to provide the best possible framework and security for this offering. We are taking particular care to provide an exceptionally high level of service quality in order to ensure the most satisfactory client experience.
The look-through service will soon be added to the range of reporting solutions available to all CACEIS clients.