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Q1 SPRING 2014 • Canada’s Independent Magazine


Financial S







Payables | Receivables | Collections | Data | P-Cards | ECM | Technology

Top 7 Reasons To Automate Accounts Payable Working With Marketing On Customer Data

Best Practices for Fighting Credit Card Theft & Fraud

Here Comes the Year of e-Everything



Volume 1 Number 1


8 4 Industry Update

Mining: Five Things You Need to Keep in Mind for the Year Ahead

6 News Features 8 Top 7 Reasons to Automate Accounts Payable

12 Working with Marketing on Customer Data

Big Data has made customer


information easier to acquire and easier to share–or sell.

22 Trends

Business commerce networks, e-invoicing, e-payment solutions will rise as companies seek better cash flow

14 Best Practices for Fighting Credit Card Theft and Fraud


25 Events

19 Regulatory Issues

Needless duplication of registration requirements hinders business expansion across Canada


Cost of compliance rising for Canadian hedge fund industry

21 Treasury systems

Relieving the most frequent pain points with treasury management onboarding

Also Publishers of

Publisher and Editor-in-Chief Steve Lloyd Editor Karen Treml Creative Direction / Production Jennifer O’Neill Photographer Gary Tannyan

Advertising Sales Mark Henry Chantal Goudreau Xavier Antonucci For subscription, circulation and change of address information, contact Subscriptions available for $40.00 year or $60.00 two years. 2014 Lloydmedia Inc. All rights reserved. The contents of this publication may not be reproduced by any means, in whole or in part, without the prior written consent of the publisher. Printed in Canada. Reprint permission requests to use materials published in Financial Operations should be directed to the publisher.

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Financial Operations | Spring 2014 | 


Industry Update

Mining: Five things you need to keep in mind for the year ahead By Mark Zastre

1. Managing rising costs

2. Preventing corruption

he mining industry is not for the faint of heart— risk is part of doing business. But some risks are greater than others. How do you navigate the ever evolving economic landscape while mitigating your risk? To mark the close of another successful PDAC convention, I want to suggest mining companies focus on these five things in order to navigate the tough environment–and thrive.

Exploration and production are being pushed into increasingly remote regions as miners work in previously untapped areas. This trend increases both risk and costs in areas such as transport, labour, and machinery and, combined with rising fuel prices and a heavier regulatory burden, means miners are facing shrinking margins. Improving productivity and exploring outsourcing opportunities to run non-core activities as efficiently as possible will allow you to improve your profitability.

The Corruption of Foreign Public Officials Act (CFPOA) has been on the books in Canada since 1999. Since 2011, the RCMP has been cracking down on Canadian companies (over 35 under investigation) engaging in corrupt behaviour involving foreign public officials. Simple awareness is no longer enough. Ignorance could be disastrous. If you’re aware of the CFPOA, make sure you understand it and have internal policies and procedures in place for obeying and enforcing it. If you don’t know

T 4 

Financial Operations | Spring 2014 |

Industry Update about it, educate your company immediately and take the actions necessary to safeguard your international operations.

3. Changing financing options The traditional routes to finance for miners are being squeezed by risk averse credit markets and the increased market scrutiny of major exploration and production activity. Business leaders need to be increasingly creative and open-minded when it comes to sourcing funding, and need to consider venture capital and other alternative financiers (such as streaming and royalty companies and/or private equity). Other options include the sale of non-core assets and capital market transactions.

4. Understand your risk appetite In January 2012, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued a new thought leadership paper, Enterprise Risk Management—Understanding and Communicating Risk Appetite. It provides organizations with additional guidance on

how to develop, and communicate, a shared vision of the amount of risk they’re willing to accept as they work toward achieving their objectives. Understanding and embracing your risk appetite can be broken down into three steps: • Develop: Your risk appetite will be unique to your organization. The key is to make a defined choice, rather than let it evolve into a level that may far exceed what you’re actually willing to accept. • Communicate: Once you’ve decided on your risk appetite, it needs to be communicated to everyone. This communication should include whether that appetite differs for different categories of risk • Monitor: The key thing is to make risk appetite a living, breathing part of the culture of your organization.

5. Shifting regulatory sands As the boundaries of exploration expand, miners have to manage a much wider range of government policy, legislation, and relationships to create a local legitimacy to

operate. Many jurisdictions have increased their focus on bribery and corruption, with higher sanctions for those found to be in breach. Additionally, securing land title and obtaining required tenure rights are a growing issue as environmental, aboriginal, and local communities increase their say on development activities. Tax and royalty regimes are also changing, with many governments looking to extract larger rents from miners to reduce deficits and pay for the environmental and social costs associated with the industry. Well-designed governance is key to managing this evolving regulatory burden. Implementing processes and controls while understanding prevailing legislation and tax across different jurisdictions will ensure you are minimizing risk and maximizing opportunity. About the Author: Mark Zastre, is the National Mining Leader at Grant Thornton LLP and Global Mining Leader at Grant Thornton International. Grant Thornton LLP is a leading Canadian accounting and advisory firm providing audit, tax and advisory services to private and public organizations. They help dynamic organizations unlock their potential for growth by providing meaningful, actionable advice through a broad range of services.


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NEWS Equipos announces initiative to assist Canadian wealth, asset managers with CRM2 compliance Equipos Inc., the global leader in client communications and client reporting automation, launches a new educational initiative that will help senior buy-side business executives to understand the implications of CRM2 on their firm’s processes, data and systems. It will also


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provide insight into the challenges of CRM2 compliance and identify ways for buy-side firms to leverage expenditure on CRM2 compliance to improve client service. According to Mike Hendy, VP North America at Equipos, “Through automation of the client reporting process there is a clear opportunity for Canadian wealth and asset managers to cut operational costs and improve client service, while at the same time addressing CRM2 compliance. Equipos has vast experience in delivering automated client reporting and communications systems globally.” Equipos Coric™ Client Communications is an end-to-end client reporting and communications suite with best practice business process automation tools that increase client reporting process efficiency by 60 to 90 per cent. Coric’s sophisticated report design and build tools empower business users to create and modify marketing-quality reports without technical assistance. Data can be aggregated from any source into personalized client communications that are distributed on paper, online, or to a mobile device. Coric’s easy-to-use dashboards and out-of-the-box workflows allow clients to effectively monitor report delivery. Equipos is a leading international supplier of specialist document management, business process management, and client reporting solutions for investment and wealth management firms. Its flagship product is the multi-award-winning Equipos Coric™ Client Communications suite. On February 25, 2014, SimCorp announced the acquisition of Equipos and its flagship product Coric Client Communications suite. SimCorp provides investment and portfolio management software and services to the world’s leading investment managers, asset managers, fund managers, fund administrators, pension funds, insurance funds, and wealth managers. SimCorp’s world-class software provides global financial organizations with the tools they need to mitigate risk, reduce cost, and enable growth. Founded in 1971, SimCorp is a global company, regionally covering all of Europe, North America, and Asia Pacific. Listed on the

Financial Operations | Spring 2014 |

Corvil unveils industry alliance to in real-time analytics from data streaming over the network Corvil, the provider of real-time operational performance monitoring, announced the launch of their Industry Alliance Partner Program to drive advanced solutions and architectures for streaming data, storage, and real-time financial analytics. Alliance partners include APCON, Arista, Cisco, cPacket, Gigamon, Ixia/Anue, and VSS. The network is one of the richest sources of data for operational intelligence relating to the real-time performance and health of a modern IT driven business. As data volumes and velocity increase exponentially in the network, it is important that the solution architecture quickly evolves to drive down cost, reduce complexity, and improve manageability of deployments. Corvil, in collaboration with its partners, have pioneered the development of a next generation architecture for time-stamped data capture over the network, lossless storage and real-time IT operational analytics. Such a solution is critical in today’s modern, real-time industries

NASDAQ OMX Nordic, SimCorp is dedicated to supporting the global investment management industry, its clients, and its investors. According to regulations introduced by the Canadian Securities Administrators, from July 15, 2014 Canadian buy-side investment management firms will be required to provide pre-trade disclosure of charges and disclose their compensation from debt transactions in trade confirmations. In 2015 enhancements to client statements will be introduced, which will provide position cost information and market value under a set methodology. In 2016 firms will be required to deliver annual reports on charges and other compensation and an annual investment performance report.

including electronic trading, e-banking, online retailing, real-time advertising, and online gaming and entertainment. “We have collaborated closely with Corvil to provide solutions for the highlydemanding financial vertical. Corvil was an early collaborator on our Arista DANZ instrumentation and time-stamped streaming of wire-data from our switches to their analytics platform. We look forward to continued collaboration with Corvil to drive innovation in the area of wire-data capture and the rich insights that can only be gleaned from streaming data in the network,” said Ed Chapman, vice-president business development and alliances, Arista. Corvil pioneered the creation of powerful operational insight based on time-stamped streaming data over the network. This time-stamping has now moved to their


partner’s platforms and Corvil’s “trust but verify” approach has assured that data quality and time accuracy is preserved. This is what feeds the CorvilNet platform and is the key starting point for deriving deep insights and actionable intelligence. This approach enables accurate analysis of key performance indicators, such as latency, and provides a solid basis for machineevent audit trail discovery and deep-insight troubleshooting. “We offer high-performance infrastructure as a service to the financial markets. Our ability to manage and monitor all activity and incidents in real-time is critical to our business and to our clients’ business. We are a Corvil customer and have deployed Corvil’s real-time IT analytics to platform on top of our network and use it every day. It provides pro-active

visibility, insight, and intelligence to assure the highest quality of service for our clients. We welcome the goals of the Corvil Alliance program to drive down the costs of network data acquisition, storage, and analysis which is an important factor for us as we experience continued growth in our business and infrastructure,” says Sonny Baillargeon, CTO of Pico Technologies. “We greatly value the collaboration with our industry alliance partners. Together, we bring a better solution to our common customers. We look forward to working with all existing and new members of our alliance program to drive new innovation and best in class solutions for acquiring and analysing the big data that streams through the network,” says Donal O’ Sullivan, VP of product management, Corvil.

For breaking news and in depth news features, visit our website at

Where are Your Profits Hiding? CPRS knows where to lookOptimizing recoveries across the entire P2P cycle. “For more than two decades CPRS has partnered with Costco Canada, providing outstanding recoveries and a high level of technical and administrative support. More importantly, the CPRS team has conducted business professionally with the highest ethical standards, earning the respect of Costco Wholesale and our suppliers. I recommend their services without reservation.” - Joe Grachek, Costco, Vice President, Merchandise Accounting Controller

Our approach gives you the best forensic talent and business analytics in the industry. We find and return lost profits, help you understand where your recoveries came from and we partner with you to mitigate future loss.

For a customized proposal of services, contact Amanda Mathes at: or call 1-877-635-2777 Financial Operations | Spring 2014 | 



Top 7 Reasons to

Automate Accounts Payable Accounts Payable

By Dermot McCauley


any technologies have been applied to the accounts payable process, including financial management systems (ERP), capture, intelligent document recognition, EDI, e-Invoicing, workflow, and the cloud. But industry experts agree that substantial benefits


remain to be realized through an end-to-end invoice and AP process automation that these technologies have not delivered. The Hackett Group reported in its ‘2013 Purchase-to-Pay Performance Study’ that finance departments continue to seek improvement in a range of efficiency and effectiveness metrics that include first pass match rate, on time payment rate, level of spend visibility, compliance to preferred

Financial Operations | Spring 2014 |

supplier policies, cost per FTE, transactions per FTE, and invoice processing cycle time. Understandably, accounts payable is a difficult process to tame, yet well worth the effort. The reasons for investing in AP automation are compelling, yet, few processes offer such tangible and fast return on an automation investment, many organizations err in judging AP as a low value activity not worth that investment. Following are seven

Feature reasons why you should move now to capture the benefits available through implementation of end-to-end accounts payable automation.

ONE: It’s a good investment Accounts payable automation’s attractiveness as an investment is well documented. Studies by The Hackett Group, the Institute of Finance and Management, Nucleus Research, Aberdeen Research, the Institute of Financial Operations and many other independent industry experts document broad and substantial cost savings. In a straightforward example, the Aberdeen Group’s May 2012 report, ‘AP Invoice Management in a Networked Economy’, measures efficiency leaders at less than $2 to pay a bill, while the majority pays $6 to $25 or more per bill, indicating available savings of more than $40,000 for every 10,000 invoices processed annually in most organizations. So if AP automation means investing in technology that pays for itself, why hasn’t everyone done it? Creating your own business case for changing how your company does AP is a good starting point for advancing the cause. Certainly, there is enough evidence to give you confidence that your case will be compelling. Besides reducing personnel costs for the capture and entry of invoice data, organizations also benefit from self-service supplier interactions, thereby reducing duplicate invoices, increasing discount capture, and eliminating late payment penalties.

TWO: Optimize cash Accounts payable is one of the organization’s largest consumers of cash. The automated accounts payable process enables AP to accurately project its pending cash requirements. It eliminates guesswork and negotiation. On-time payments to suppliers are required to capture discounts. This requires on-time approvals by buyers and cost center managers. Automated alerts and escalations reduce the nagging by AP. Meanwhile, in its ‘2013 AP Automation Study’, the Institute of Financial Operations reports that 42.5 per cent of survey respondents captured fewer than 10 per cent of early payment discounts. Visibility into the process enables AP to manage priorities so they focus on the activities that will impact cash most positively. It’s what enables on-time payment for all invoices.

High value invoices can be isolated and managed by AP without buyers and management’s assistance. Dynamic discounting offers suppliers a payment discount in exchange for earlier payments, earning an annual return that can be in excess of 30 per cent. Without automation, it is not feasible to implement dynamic discounting.

THREE: Strengthen internal controls A manual AP process is a breeding ground for fraud. An automated AP process embeds controls that prevent and deter fraud. Since the implementation of regulations such as Sarbanes-Oxley, the stringent adherence to internal controls that mitigate fraud and ensure integrity of financial results has increased AP’s compliance requirements and responsibilities. There is simply no way to ensure these controls in a manual process. Organizations with manual AP processes rely on audits, which further increase the cost of the process yet only provide a partial view into adherence. With controls embedded into an automated process, AP reduces the workload and cost of compliance and saves money.

while supplier and invoice validation can be locked down by automated business rules. Most AP departments cannot dedicate staff to limited roles; rather they seek to segment transactions to limit the possibility of a violation.

FOUR: Optimize Visibility The manual AP process suffers from lack of visibility. This is fueled by decentralized invoice receipt and a different process for each type of invoice (paper, EDI, email, Fax, etc.) When invoice receipt is decentralized, e.g. invoices are sent to employees or field offices rather than directly to AP, invoices can languish for days, weeks, and months. Suppliers who expect on-time payment are unhappy and quickly become the source of AP’s pet peeve and drain on resources: rush invoices. When invoices are not visible at the end of accounting periods, there’s a risk of not recognizing a material portion of liabilities. Incomplete accruals may understate expenses and thus overstate income, and can result in ‘cut-off fraud.’ The centralized receipt, immediate capture, extraction, validation, and entry of data for all types of invoices accelerates the

The reasons for investing in AP automation are compelling, yet, few processes offer such tangible and fast return on an automation investment… The most common source of corporate fraud is in accounts payable. A 2013 survey by the Association of Finance Professionals reported that 61 per cent of organizations suffered attempted or actual payment fraud in 2012 and 27 per cent indicated that the incidences of fraud had increased. An errant employee creates a fraudulent supplier, followed by an invoice that is entered, approved, and paid. Or, an unscrupulous supplier submits invoices that are paid when they should not be. The automated process limits users to authorized functions (e.g. create supplier, enter invoice, approve invoice) and ensures that invalid invoices are not paid. Segregation of duties is enforced, ensuring, for example, that the same person cannot enter, approve, and pay an invoice for a supplier,

recognition of liabilities. It delivers a complete audit trail of every step and participant in the process and puts management in the position to quickly resolve potential problems. It eliminates most inquiries, as employees, finance and suppliers have self-service access to invoice and payment status.

FIVE: Satisfy Customers The automated process provides the foundation for the assessment of AP’s productivity and effectiveness. It provides the data to prove that AP is achieving its cost objectives and meeting its service level commitments. It delivers metrics including cost per invoice, cycle time, process throughput, queue throughput, and user productivity. Insight from these metrics

Financial Operations | Spring 2014 | 


Feature enables AP managers to more effectively leverage resources and to substantiate service levels to employees and suppliers. It promotes AP’s image from a messy cost center to an efficient and effective contributor that supports the organization’s strategy. AP must reach a large constituency of internal and external customers. The manual process requires interoffice mail and email, with cumbersome and difficult to decipher forms. An automated process makes it easy for internal customers and suppliers to participate by providing self-service, browserbased options via desktop, tablet, or mobile devices for inquiries, discrepancy solution, and approvals, while ensuring adherence to organizational security standards. The primary source of supplier dissatisfaction, the ‘lost’ invoice, results in late and duplicate payments that increase costs. These are eliminated when suppliers leverage self-service portals for invoice submittal and inquiries and are greatly reduced by centralized receipt. Satisfaction is ultimately achieved by paying them accurately and on time.

SIX: Improve Quality Errors in AP are costly in all currencies including dollars, Euros, departmental productivity, cash flow flexibility, and the organization’s reputation. They are a major source of embarrassment. The challenge is to understand where and why errors occur and to systematically address and eliminate them to improve quality. And errors are surprisingly costly, as revealed when an AP error is broken down into the steps required to address it. For example, a supplier short-pay error requires that an organization: 1. Respond to the supplier’s complaint 2. Investigate the error 3. Respond to the supplier with the disposition of the error 4. Issue a credit or initiate a new payment 5. Approve the new payment and, if necessary, reconcile with the PO 6. Mail the payment and inform the supplier 7. Account for this new liability 8. Manage the supplier’s satisfaction 9. Manage the impact of delayed or withheld products from the supplier (which may impact production schedules) Each step is time consuming for AP, the internal buyer and the supplier.


Error rates plummet from the automated capture, extraction, validation, and entry of invoice data, including supplier names, invoice numbers, invoice dates, invoice amounts, PO numbers, or specific line items ordered. Yet, according to the Institute of Financials Operations’ 2013 survey, fewer than 60 per cent of organizations use invoice imaging at the beginning of their AP process and a shocking 77 per cent fail to exploit OCR technology to automatically extract invoice data. It’s no wonder that quality is so low and inefficiency, cost, and error are so high. Automated workflow that is fueled by high quality invoice data, and validated against ERP records, drives processes that avoid error, delay, and unnecessary cost. Where exceptions occur and remedial steps are needed, they are handled within the workflow, not in an expensive, uncontrolled, unaudited, non-compliant offshoot process.

SEVEN: Operational Flexibility AP must support the organization’s strategy. This may require handling increased transaction volumes due to growth or acquisition. It may require displacement of functions into a different geography. It demands that AP provide higher value services, including spend analysis and forecasting. Manual and disparate processes are not responsive to change. If strategy or requirements change, manual, peopleintensive, and non-standard processes can only adapt to these changes by investment of significant additional resources. Such processes are hard to move from one location to another. And manual and disparate processes encumber AP with low value work and leave AP unable to staff higher value services. Not so with the automated AP organization. Increased volumes require considerably fewer resources. Shifting gears in an automated process is much less expensive than increasing people costs in a highly manual and non-standardized process. Automation facilitates the movement of functions to other geographies. The process is easily extended in support of mergers and acquisitions and delivers an efficient process at a low cost. Besides the importance of control and compliance, flexibility is a must in today’s economic environment. An AP process must be responsive to change, whether by dealing efficiently with one problematic invoice or by

Financial Operations | Spring 2014 |

supporting business expansion, consolidation, or rationalization quickly. Leaders now invest in AP process automation that provides a world class service to their organization.

Next Steps The pay-back period for investment in invoice and AP automation is short, averaging six to 18 months. A proven problem with proven solutions, AP process automation is a low risk investment. In our experience, successful AP automation projects are chartered on the basis of some or all of the seven reasons to invest. And the most common first step for organizations that succeed with AP automation is the early creation of a wellresearched business case. The good news is that the reasons to automate AP are clear and much of the information to create a compelling business case is available to finance departments, either from internal systems or from industry sources such as those mentioned above. We recommend three simple steps to set your organization down the path to successful AP automation: 1. Build your AP automation business case: Leverage available internal and external data to make tangible the benefits that will accrue to your organization specifically. 2. Invest in the preparation of your case: It’s not enough to have the right business case. You must also present it in a form that is compelling to all the internal audiences who need to support you in the realization of the benefits you propose. As more than 50 per cent of respondents in the 2013 Institute of Financial Operations survey indicate, competing for executive attention and sponsorship over other projects is the No. 1 obstacle to getting AP automation projects approved. 3. Partner: recognize that success necessitates internal and external partners, colleagues, and vendors in the building of your case, in its presentation, and in the selection and implementation of your AP automation solution. Yes, AP is a difficult process to tame, but with the right partners it’s well worth the effort. About the Author: Dermot McCauley is Vice President, Solutions Product Marketing for Kofax. He is responsible for bringing to market solutions that leverage software products to address targeted customer business issues.


Working with marketing on customer data

Big Data has made customer information easier to acquire and easier to share – or sell. How it’s gathered, managed, and delivered is decisive By Scott Schlesinger


n this age of Big Data, information on customers is more readily available and more easily collected than ever before. The new normal in customer and consumer behavior – that of being always-connected – creates volumes of interaction, behavior, and sentiment data which can be sold to those that want customers to buy our goods, visit our venues, eat in our restaurants, and use our services. Big, private data, is just as disruptive and innovative a force as the technology that enables its collection and availability. It is all but traded as a commodity. That has both negative and positive consequences. Think about your own experiences. How annoying is it to receive a text or call from a marketer trying to sell a product or service that you have no interest in buying? Conversely, how great is it when you receive an email from a products or services company that can help you maximize your purchase and/or minimize your cost?


Companies have been leveraging customer data for internal marketing campaigns or selling this data to third parties for many years. Large banks have sold their customers’ transactional data to outside groups that use this data to collect and analyze consumer spending patterns. Facebook makes $3 billion in advertising revenue alone, which is 85 per cent of their overall revenue. How? By selling their most valuable commodity, ad space, to companies that want to reach millions of global Facebook subscribers. When people indicate that they like a certain product, musician, or movie, that data is analyzed and made available to those companies that have spent advertising dollars with Facebook so they can target prospective customers and get a better return for their investment. But, what about securing permission to use the data your company generates from its operations? There are laws in place that are designed to protect privacy and secure customers’ personal or activity data. However, wherever there is a rule, there are usually

Financial Operations | Spring 2014 |

people looking for ways to bend these rules and skirt the system to profit from the value of the data they collect and sell. Some large companies see their customers less as individuals and more like dollar signs or inanimate ‘assets’ when it comes to the rich personal data they can collect and sell to the highest bidder. Some have complex customer agreements that are vague and ambiguous. These agreements seem to protect personal information, yet many times serve more as a legal ‘release’ that allows the company to use this data surreptitiously or sell it for profit. Let’s face it, the web has made the collection of data on a mass scale easier than ever before and the means to collect and analyze this data (leveraging Big Data and Advanced Analytics solutions) have matured greatly in recent years. The profits are huge and, while there may be some ancillary benefits to consumers in terms of being the beneficiaries of some directed promotions, there is no true financial benefit in it for those whose data is being used. Therein lies some of the resentment and backlash we see

Feature around data security and data privacy (or lack thereof.) While a majority of companies have invested in wide ranging customer experience programs, big data and data mining programs seem to be run almost with impunity with very little focus on bringing customers and clients along this profitable journey. If customers were compensated for their data (financial, credit, spending habits, etc.) when it was used or sold, would they have as much of an issue/concern over data privacy? I’d argue no. If they had a feeling of power with respect to how (or who) was permitted to use the data, would they have as much of an issue/concern over data security? I’d argue no. But this simply is not taking place on a large scale and most customers are not in control of who get his data and how it is used. According to a recent Forbes article entitled ‘Why CMOs Need To Get Real About The Policy Implications of Big Data’, by Steve Olenski, relatively few CMOs are thinking about the profound policy implications of big data – especially those relating to privacy and security. Less than one-third considers it necessary to change their privacy policies despite the numerous ways in which customers’ privacy can now be compromised. This is a bit surprising and I firmly believe that consumer backlash and outrage is on the horizon. Social media is fueling the fire and blurring the lines of consumer privacy. Is it that companies are really trying to gauge customer sentiment or just invading consumer privacy for to increase their profits at their customers’ expense? A marketer’s goal should be to strike a beneficial of balance between the use of customer data to drive engagement, increase customer retention, and grow sales with (what some call) a value exchange where the customer also benefits in ways other than giving more money to the marketer. Allowing customers to opt-in and share data or opt-out and keep their data private will allow the customer to feel more engaged and comfortable and actually increase customer loyalty. Today’s CMO has a real challenge on their hands deciding how to best balance the needs, wants, desires, and concerns of the customer with the potential benefits that can be derived from leveraging that customer’s data either internally or externally – or both. Now is the time for CMOs to formulate the right strategy, and strike a balance

that engages their customers and gives them a sense of comfort with the needs of the company to spend their marketing dollars more efficiently so that they are well positioned to leverage the vast quantity of rich consumer data available and do so without alienating their customer base. Further as described in this article, the ability to improve customer engagement and improve value from social analytics and mining are not contradictory but go hand in hand. As in other areas, CMOs who increase customer engagement are best positioned to leverage the vast quantity of rich consumer data available and do so without creating negative brand perception and without alienating their customer base. CMOs must be aware of prevailing federal, state, local, and corporate policies governing privacy. To efficiently corral such a huge topic, CMOs should leverage the collective knowledge of the organizational Data Governance board. They hold the keys to data knowledge and exist to enable CxOs to authoritatively and confidently use corporate data. The consequences of circumventing corporate data governance vary: legal impacts, loss of customers, mis-targeting customers, negative Twitters, etc. The consequences of marketing using trusted data are equally compelling: the right ad to the right customer at the right time, increased share of wallet, new and innovate product development opportunities, Facebook “likes”, etc. The richness of available personal data makes mining it compelling. But, as rich and sexy as Big Data has become, it still boils down to the basics of blocking and tackling data. If the data has a high level of quality, a CMO can trust it to yield accurate results. If the domains of data have been identified and mastered, the integration of demographic, weather, mobile, etc data under a program of business analytics becomes a sound basis for decision making: new products, new channels, new customers or a way to tell a new story to valued customers. The ability to weave together the strategic business value of Big Data for a CMO combined with the ability to execute and deliver the analytic technology platform that delivers insights on the data is a powerful combination. About the Author: Scott Schlesinger is Vice President, Head of North America Business Information Management at Capgemini. He is responsible for the direction, management, and operation of the firm’s industry-leading Business Information Management (BIM) group.

Big data has potential to reshape accounting, finance professions, says Director of Policy for ACCA Big data, the vast amounts of information collected through devices and technologies, has the potential to ‘reshape’ the accounting and finance professions by providing them with an opportunity to move into more strategic roles in business, says Ewan Willars, director of policy for ACCA (the Association of Chartered Certified Accountants). The term big data is commonly used, but not commonly understood. It refers primarily to data continually collected through credit cards and customer loyalty cards, the internet, and social media and, increasingly, WiFi sensors and electronic tags. Much of this data is ‘unstructured’ – data that doesn’t conform to a specific, pre-defined data model. “Big data offers accounting and finance professionals a stunning opportunity,” says Willars. “However, in order to differentiate themselves in the marketplace and turn big data to their advantage, they will need to do three things: 1. develop methods and services for the valuation of data, 2. use big data to offer more specialized decision-making support and 3. employ it to evaluate the risks and rewards of long-term investment in new products and new markets.” ACCA (the Association of Chartered Certified Accountants) is the global body for professional accountants with 162,000 members and 428,000 students in 170 countries worldwide. We aim to offer business-relevant, first-choice qualifications to people of application, ability, and ambition around the world who seek a rewarding career in accountancy, finance, and management.

Financial Operations | Spring 2014 | 




Financial Operations | Spring 2014 |


Best practices for fighting credit card theft and fraud By Tammy Haug


undreds of Canadian consumers were dismayed to learn recently that their credit cards had been compromised at certain gas stations and restaurants where hackers had installed and were running malware remotely on credit card terminals. This attack, while much smaller in scale than the Target Corp. breach that exposed credit card and personal data on more than 110 million consumers throughout North America during the holidays, underscores the evolving nature of malicious computer code and the increasing sophistication of criminals who unleash their attacks on unsuspecting victims. Like Target, merchants that accept credit cards yet fail to protect their customers’ sensitive payment data from a breach often end up facing massive financial costs, lawsuits, fines, and profit losses along with brand erosion and significant interruptions to their business. Meanwhile, the costs, frequency, and time to resolve cyber attacks continue to escalate. According to the Ponemon Institute’s ‘2013 Cost of Cyber Crime’ global study, the average cost of cybercrime in the U.S. alone reached $11.56 million per company per year, up 30 per cent from $8.9 million in 2012. When this study was first conducted four years ago, the annualized percompany average was $3.8 million. This same study also reveals that the number of attacks has increased exponentially over the years. Companies experienced an average of 343 successful attacks per week in the 2013 report compared to 102 a week in 2012. Fifty attacks a week were the norm in 2010. Financial Operations | Spring 2014 | 


Feature With attacks growing in complexity, the average time to resolve them has doubled, from an average of 14 days in 2010 to 27 days in 2013. To protect customer credit card account information and minimize exposure to online payment scams, here are tried-and-true best practices for merchants to adopt:

1. Train Employees to Spot and Stop Fraud

Ensure all employees, contract personnel and business partners know your company’s fraud policies, practices, and fraud-response processes. Make sure anyone with access to important intellectual property and trade secrets is trained on the latest breach tactics, such as phishing, man-in-the-browser attacks, and other social engineering schemes. Train administrators and other users of your payment system to keep an eye out for unexpected card usage and to sound an alert in case of anomalies. When using an online shopping cart, train employees to look for safety symbols such as the padlock icon in a browser’s status bar, ‘s’ after ‘http’ in the URL or the words ‘Secure Sockets Layer (SSL)’ – all signs that a merchant is using a secure page for transmitting confidential information. Warn employees against clicking on popup windows or suspicious links in emails – even from people or businesses that appear legitimate – which can be tricks to install malware and steal confidential information. Some emails can be dead giveaways that they’re fraudulent, but others can look genuine. If in doubt, hover over – but do not click on – any link in the body of the email to determine whether the sender is really who he or she claims to be. If the link and sender’s address in the email header aren’t from the same Internet domain, that’s a red flag. Establish guidelines for employee use of social media on company computers and smartphones. Encourage them not to share too much personal information on social networking sites, since cyber criminals regularly troll these networks to create a collective picture of their victims before striking. Fraudsters zero in on their targets with methodical precision, studying victims’ digital personas on Facebook, Twitter, LinkedIn, and other social channels, piecing together bits of information to help them more easily penetrate systems and lure


unsuspecting targets into clicking on email links, unleashing malware that compromises computers or allows keystroke logger robots to collect user login IDs, account data, and other personally identifiable information. Finally, assemble an internal ‘hazmat’ team that thinks and works strategically to prevent and deter attacks rather than just detect them.

2. Do Your Outsourcing Homework When choosing an outside payment system or data security provider, make sure they have deep security capabilities and a like-minded business focus. If card-based, check that they’re PCI-compliant, are audited every year by an independent third party, and are Tier-1 certified. Tier-1 certification ensures that every feature, function, and operational element of a company’s services meets the highest levels of data security mandated under the Payment Card Industry Data Security Standard (PCI DSS).

3. Adopt Industry Safeguards Becoming PCI-certified doesn’t magically shield a business from losing data or provide impenetrable security against hackers or malware. Yet the standards have proven to be an excellent roadmap for data security best practices. Use PCI DSS not only for card activity, but as a roadmap for protecting access to other sensitive information, such as employee Social Security numbers or patient medical records.

4. The Best Defense is a

Multilayered Offense

No system on earth is 100 per cent hackproof, so manage the risk of a potential breach by solving for the concept of ‘graceful failure’ – a deep, multilayered strategy that assumes perpetrators will eventually gain some form of access to your confidential data. If one safeguard fails, other countermeasures can detect and respond to an attack by locking down payment data so it’s worthless to hackers in case of a breach. In this multi-layered system, assign unique IDs to each person with computer access. Combine user IDs, passwords, and access tokens with tight, permission-based business rules around who needs to see or authorize confidential information, such as credit card types and accounts. Create a detailed audit trail, so that you know who touched what data and when. Set granular limits on transaction

Financial Operations | Spring 2014 |

amounts, transaction velocity, and IP address protocols. Impose transaction restrictions on time of day and day of week, so that nothing and no one gets past your virtual front door outside normal working hours.

5. Lock Down System Gateways and Endpoints

Routinely scan network architecture and PCs for vulnerabilities, scrutinize every transaction point where payment information is exchanged, and secure all payment data flows and touch points. Install antivirus and antispyware software from trusted sources and keep them updated with the latest patches. Automatically scan any flash drives or external hardware that connect to your network for viruses or malware. Never turn off your firewall, and have business policies in place for regular firewall maintenance. Use strong passwords and change them routinely.

6. Don’t Collect What You Can’t Protect

One of the safest practices for businesses that process credit card data is so obvious it is often overlooked: eliminating the storage of that data altogether. No data stored = less risk. Unless it’s absolutely necessary to retain payment or cardholder data, don’t. Because credit card data must be secured at every point, complying with PCI rules as well as building and defending one’s own data fortress can be extraordinarily difficult and prohibitively expensive. Organizations that collect and store that data for themselves often find the process to be a huge headache with potentially significant liabilities rather than a convenience for their customers. Tokenizing and transferring sensitive payment data off site, where it is encrypted and stored at highly secure, PCI-compliant processing centers, is often the best solution. Tokenization is one of the best strategic weapons for protecting credit card data. This process safely replaces a customer’s real 16-digit credit card numbers or bank account data with a randomly generated string of characters called tokens, which then become useless to would-be hackers. About the Author: Tammy Haug is Vice President and National Sales Manager, VP for AOC Solutions, Inc. She is responsible for growing the portfolio of AOC Solutions through new sales of the commercial payment division’s technology solutions and products.




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Regulatory issues

Needless duplication of registration requirements hinders business expansion across Canada


anadian businesses face costly red tape when they want to do business across provincial borders; a problem that is hindering business expansion and economic growth, according to a report by the C.D. Howe Institute. In ‘Registering in Harmony: The Case for Pan-Canadian Corporate Registration,’ authors Daniel Schwanen and Omar Chatur note that while harmonization of corporate registries is proceeding apace around the world, in Canada, incorporated companies are required in most cases to register separately in every province where they want to conduct business. “Everyone from the premiers and business groups to the federal government in its latest budget have called for an end to this costly duplication,” says Schwanen, “so far to little avail.” Registration across multiple provinces often means that companies operating across Canada have to provide similar information to many governments, often in different formats, note the authors. Businesses must pay fees in multiple jurisdictions when they register or renew their registration each year. In most cases, they must also pay to maintain an attorney or ‘agent for service’ to represent the company within its borders.

federally to save time on completing extra-provincial registration for these provinces. While most provinces have made efforts to streamline their internal corporate registration requirements, the goal of achieving panCanadian harmonization has remained elusive. The authors recommend relaunching a national process aimed at achieving a pan-Canadian system in which corporations need only ‘register once’ to do business across the country; one that brings Canada up to the best global standards in this area. The C. D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. It is Canada’s trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review. It is considered by many to be Canada’s most influential think tank.

Canadian governments agreed in 1994 that addressing extra-provincial corporate registration requirements is important to a more open market. Despite this apparent alignment of purpose, pan-Canadian harmonization of corporate registration has not yet occurred. This is in spite of followup entreaties such as that of the Canadian Premiers, at the August 2010 meeting of the Council of the Federation, formally directing the ministers responsible for Internal Trade to reconcile their extra-provincial corporate registration and reporting requirements. Most recently, the federal government challenged premiers to come up with steps toward harmonization in its latest budget. From an ‘ease of doing business’ perspective, the New Brunswick and Nova Scotia mutual recognition system is the most advanced example of cooperation between two Canadian jurisdictions, they note. Another example is the New West Partnership Trade Agreement, which includes British Columbia, Alberta, and Saskatchewan. It fulfills some important objectives with respect to easing the red tape burden, but only among three provinces. Agreements between Ottawa and the provinces of Newfoundland and Labrador, Nova Scotia, and Ontario and Saskatchewan allow businesses incorporating

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Financial Operations | Spring 2014 | 


ATTEND OUR BREAKFAST BRIEFING Register Now to Reserve your Seat at Learn How to Build Greater Sustainable Internal Controls Driven by Insights. Even with the high level of automation of financial processes such as AP, P-cards, and T&E; these areas still remain prone to fraud, money leakage, waste, and inefficiency. These business processes often span multiple systems and locations resulting in a lack of insights. At this briefing our Speaker will discuss effective methodology for implementing sustainable financial controls by: • Detecting control failures as they occur • Engaging the business to collect key indicators and metrics from incidents • Converting those metrics into real insights • Using the insights to address root causes and improve the business process Despite the ongoing focus on having strong internal controls, businesses still struggle with making it sustainable – primarily, because of two hurdles: a lack of insight into why controls are failing and the inability to accurately discern root causes. Trying to recover money after the fact and repeating the same cycle annually is proving to be less attractive to businesses. Instead there is greater interest in preventative approaches that collect insights as close to the control failure as possible while using those insights for proper root cause analysis. Speaker: Andrew Simpson, Chief Operating Officer, CaseWare Analytics

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July 10, 2014 • 7:30-10am The National Club, 303 Bay St, Toronto M5H 2R1

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Relieving the most frequent pain points with treasury management onboarding


orporations experience multiple pain points at least 50 per cent of the time through the treasury management implementation process. Among key pain points include ‘on-time implementation,’ lack of visibility into implementation status, and poor communication with the bank. A survey completed by 19 banks with assets of $25 billion plus and 20 corporations with revenue $500 million and greater, identifies the negative impact a paper-intensive onboarding process has on revenue and client satisfaction and ways banks can streamline the process. The results also identify gaps in technology, revealing many large banks aren’t effectively using the technology they already have in place, and mid-sized banks could benefit from some enhancements. Advances in technology to improve the treasury management process can also be a revenue driver, because 70 per cent of banks surveyed believe improving the implementation process will free up their sales team, while 90 per cent believe a significant opportunity exists to accelerate revenue by shortening the implementation cycle time. “Treasury onboarding today is bogged down by a paper-intensive process,” says

Vicky Unson, principal, Treasury Strategies, Inc. “Banks are focused on finding better, more efficient ways of onboarding treasury management services for customers. Optimizing the onboarding process is a major initiative for many banks with whom we work, given its strong impact on winning new and subsequent business. At the same time, corporate customers welcome innovations such as paperless treasury solutions to provide them with a smoother onboarding process.” On a scale from one to five, with five being a “very strong impact,” corporations rated the treasury management implementation process a four-plus, validating the significance of the initial sale as well as the influence on future purchase behavior. In addition, more than 75 per cent of corporations believe electronic documents would be an acceptable alternative to paper-based documents. Automated solutions exist to eliminate paper from the implementation process and can complete in hours the tasks for which today’s paper-reliant processes require multiple days. Such solutions include workflow technology and electronic signatures generated via mobile tablet devices like iPads. The study shows that half of the corporate respondents believe the use of an iPad

would improve their satisfaction with the implementation process. Banks are overwhelmingly receptive to the use of an iPad to gather data and signatures directly from the customer during the implementation process. However, none of the banks surveyed claim to be using this tool today. Astonishingly, the biggest obstacle across all banks surveyed related to the use of electronic signatures as none of those surveyed claimed to support this technology. During the WAUSAU onboarding discovery process, where a financial institution sets out to identify potential efficiency gains and process improvement opportunities, one bank improved its treasury fulfillment process by 35 per cent by adopting paperless solutions. In addition, these solutions are even helping banks manage compliance requirements for safeguarding sensitive information. “A paperless solution solves the key challenges with treasury fulfillment,” said Joe Pitzo, vice-president, paperless enterprise solutions, WAUSAU Financial Systems. “This survey validates the need for paperless solutions – for both banks and corporations – pointing to real business value including accelerated revenue and strengthened customer relationships.”

Financial Operations | Spring 2014 | 



Use of business commerce networks, e-invoicing, e-payment solutions will rapidly rise as companies seek better cash flow


Financial Operations | Spring 2014 |


By Esa Tihila


hile the global economy is beginning to bounce back, organizations are still faced with a heightened pressure to improve their cash flow and will turn to innovative payment strategies in the next year. This is one of the predictions of Basware, the leading provider of e-invoicing and purchase-to-pay solutions, for the key finance and procurement trends in 2014. Further, the fast growth of social, mobile, and cloud computing will fuel the rapid rise of e-invoicing and e-payment services over the next year, as well as internal and external collaboration driven by accounts payable and real-time analytics. In the coming year, finance and procurement departments will seek to further use a series of networks to improve financial management and increase responsiveness to internal users, customers, and suppliers. These trends will lead to better insight, improved processes and increased collaboration. In 2013, companies have been focused on improving their cash flow and we expect this trend to continue into 2014. Effective payment strategies will stay front of mind as organizations look to maximise working capital and ensure the financial stability of their suppliers. We predict four key elements that will transform B2B commerce over the next twelve months:

1. 2014 Will Be The Year Of ‘e-Everything’ In today’s real-time social, mobile, and cloud-based environment, business users are demanding access to information and the ability to process tasks in a matter of seconds or minutes. Finance and procurement professionals will see rapid growth of e-invoicing, e-ordering, and e-payment services to meet these increasing demands. They will come to expect open, engaging digital experiences and ease-of-use also in

their finance and procurement solutions. Following in the footsteps of buyers, suppliers are beginning to realise how expedited invoicing can improve cash flow and allow them to benefit from real-time financial data. 2014 will see suppliers turning to supplier portals as well as onboarding services to make invoicing faster and more accurate. Moreover, local governments will continue to play a pivotal role in pushing national economies to apply e-invoicing. The key to transitioning to ‘e-Everything’ and achieving financial success in 2014 will be to become better connected. Networks are infiltrating people’s day-to-day lives more than ever before, so it is only natural for this to also happen in the workplace. Business networks will continue to have significant impact on the development of procurement and payables in 2014. In the era of the connected economy, companies that use collaborative technology to connect internal employee efforts to customers, suppliers, and partners are much more likely to be market leaders, gain market share, achieve higher margins, and increase sales.

2. Clever Buyers And Suppliers Free Up Cash Flow In many markets, e-payments have typically focused on consumer retail payments, but that will change in 2014 as increased market pressure and new solutions come to bear. Cash flow concerns are being fuelled by large companies looking to extend their payment terms with suppliers and free up cash for their organizations. With terms now typically 60 to 100 days, the impact on suppliers – particularly smaller ones – can be severe, jeopardising financial stability as well as creating risk in the supply chain. For next year we expect to see the rise of innovative e-payment solutions that will address both sides of the payment issue: they will speed up slower invoice processing and invoice payment to ensure that suppliers will get paid upon invoice approval, while extending terms for buyers. More importantly

they will be integrated with e-invoice solutions to offer huge opportunities to both buyers and sellers.

3. 2014 Will Be The Year Of The Accounts Payable Change Maker Forward thinking finance and procurement leaders will be using technology to drive out complexity and inefficiency from core processes. They will dismantle the silos separating finance, procurement, and treasury and adopt automation solutions, e-invoicing, and open commerce networks to work smarter. In 2014 the accounts payable team, which holds the knowledge of actual spend, will increase collaboration across the company. It will continue to implement social, mobile, and cloud-based e-invoicing and e-payment solutions to make information more accessible and drive change across the organization. The ability to measure key metrics will be the catalyst for the accounts payable change makers to take performance to new levels.

4. Leaders Increase Their Competitive Advantage Through Use Of Analytics Now more than ever, companies require immediate access to spend and cash flow information to better manage finances in realtime. In 2014, companies will rely even more heavily on analytics, working not only across their purchase-to-pay process but also across their whole network of buyers and suppliers to aid decision-making. The use of real-time analytics will help identify financial bottlenecks and opportunities for cost savings. It will collate information from across the network to uncover trends that help improve cash-to-cash conversion cycles and critical performance indicators such as days’ sales outstanding and days’ payment outstanding. About the Author: Esa Tihilä is CEO of Basware. The firm provides open, secure, cloud-based purchase-to-pay and e-invoicing solutions to organizations of all sizes, resulting in greater efficiencies in procurement, accounts payable and accounts receivable.

Financial Operations | Spring 2014 | 


NEWS Partnership creates a fully automated, national collateral management & corporate search and identity services Equifax Canada Co. and AVS Systems Inc. have entered into a strategic partnership designed to provide end-to-end credit processing solutions. Equifax is a trusted provider of consumer and commercial credit risk assessment and management solutions. AVS has developed a comprehensive and robust technology platform that provides direct connectivity to each provincial and territorial personal property registry system and each provincial and federal corporate registry in Canada. This portal enables automated online lien registration and lifecycle management, along with corporate search capabilities. “With our extensive credit processing and


analytics capabilities and AVS’s leading technology, we can offer our clients a comprehensive solution with embedded data and analytics which will help improve productivity, enhance compliance, and lower risk,” says Carol Gray, president, Equifax Canada Co. Within the rapidly changing financial industry, there is a market need for advanced and comprehensive technology solutions that can access, validate, analyze, archive, and transmit business-critical data. With these capabilities, businesses are better equipped to improve efficiency while ensuring alignment with the changing regulatory environment. “We are extremely excited about our partnership with Equifax and the

Financial Operations | Spring 2014 |

opportunities it presents,” says Larry Mullins, president, AVS Systems Inc. “We have invested heavily in developing the most advanced technology platform, which augments the joint expertise of our organizations in lien management, compliance, and credit processing. As a result, we can now deliver multiple market leading services in a single consolidated solution.” Businesses will benefit immediately with a newly launched PPSA Connect™ solution as well as an enhanced Business Confirm™ solution. Further work is being done to explore potential opportunities to integrate more data assets and solutions from both organizations to provide better value for clients.



April 6-9 NACHA, The Electronic Payments Association, Payments 2014 Orlando, CA April 6-9 ICMA Annual Card Manufacturing & Personalization Expo Ft. Lauderdale, FL

May 2014 Commercial Payments International Global Commercial Cards & Payments Summit 2014 New York, NY May 5-7 WB Research eTail Canada 2014 Toronto, ON

April 7-10 NAPCP 15th Annual Commercial Purchasing Card and Payments Conference Palm Springs, CA April 8-10 Electronic Transactions Association 2014 ETA Annual Meeting & Expo Las Vegas, NV April 9-12 Factoring Associaton 20th Annual Factoring Conference San Francisco, CA April 22-25 PaymentsSource 26th Annual Card Forum & Expo Orlando, FL April 28-30 Finovate Finovate Spring Conference San Jose, CA

May 5-8 IFO Fusion 2014 Forum & Expo Dallas, TC May 13-15 Cartes North America 2014 Las Vegas, NV paymentsbusinessevent June 1-8 Credit Scoring & Risk Strategy Association 21st Annual Conference Niagara Falls, ON

JUNE June 7th Annual Prepaid & Payments Retreat Toronto, ON June 3-4 Smartcard Alliance NFC Solutions Summit 2014 Austin, TX June 4-5 ATMIA Canada Annual Canadian Conference 2014

Niagara Falls, ON June 11-13 NBPCA Annual Congress-The Power of Prepaid 2014 National Harbor, MD June 5-7 FEI Canada Annual Conference Lake Louise, AB June 13-14 Payments Source International & Cross Border Payments San Francisco, CA

SEPTEMBER September 14-16 IFO Canada 4th Annual Canadian Financial Operations Symposium Vancouver, BC canada2014 September 29-Oct 2 Sibos Annual Conference 2014 Boston, MA

OCTOBER October 19-22 Sourcemedia ATM, Debit & Prepaid Forum 2014 Phoenix, AZ

NOVEMBER June 17-18 ACT Canada Cardware 2014: Payment Insights Niagara Falls, ON June 25-27 Canadian Payments Association Payments Panorama Charlottetown, PE

November 2-5 Association of Financial Professionals AFP Annual Conference 2014 Washington, DC November 12-14 BAI BAI Retail Delivery Conference 2014 Chicago, IL

AUGUST August 3-6 Retail Solutions Providers Association RetailNOW 2014 Orlando, FL August 18-20 tppEXPO 2014 The Pre Paid Press Expo Las Vegas, NV

November TBA Comexposium CARTES & Identification Exhibition 2014 Paris, FR

DECEMBER December TBA Members Meeting Smart Card Alliance Coral Gables, FL

Visit us online Financial Operations | Spring 2014 | 



Cost of compliance rising for Canadian hedge fund industry


edge fund managers revealed they are making significant investments in their firms’ infrastructure to comply with new regulatory requirements, according to ‘The Cost of Compliance’, a report produced by KPMG International, the Alternative Investment Management Association (AIMA), and the Managed Funds Association (MFA), in 2013. One of the largest global surveys of hedge fund managers, it includes the views of 200 hedge fund managers representing more than $910 billion (USD) in assets under management (AUM). The survey found the average spend on compliance was at least $700,000 for small fund managers, $6 million for medium fund managers, and $14 million for large fund managers.

Key implications for the Canadian hedge fund industry: • Investments being made in compliance efforts: The global hedge fund industry has already spent more than $3 billion (USD) to date on compliance costs. Hedge fund managers were found to be spending anywhere between 5 to 10 per cent of their operating costs on compliance technology, headcount, and strategy. • Smaller firms carry the burden: The cost of compliance is creating a heavier burden on smaller firms and could become a barrier to entering the market. The smaller firms are spending more - both as a percentage of AUM and relative to operating costs - than their larger counterparts.


• Smaller funds are spending a considerable percentage of the fees they earn on compliance - in North America the cost is 40 bps of Assets Under Management. • Overwhelmingly, managers are shouldering the majority of the costs associated with compliance, and not passing them on to the funds. • More than a third of global hedge fund managers with less than $250 million in AUM said compliance requirements consume more than 10 per cent of their total operating costs. • Complexity of regulations create need to outsource: More than two-thirds of the respondents said they needed outside help with Alternative Investment Fund Managers Directive (AIFMD) authorization and reporting; 65 per cent needed help with Foreign Account Tax Compliance Act (FATCA); 63 per cent needed help with their Securities and Exchange Commission (SEC) registration and reporting; and 62 per cent needed external help with their US Commodity Futures Trading Commission (CFTC) registration and reporting. • The AIFMD and the FATCA were the highest in terms of cost, time, and need for external support, which is likely due to their complexity and global reach. Many believe that recent regulation has

Financial Operations | Spring 2014 |

improved the strength, transparency, and reputation of the market and improved investor protection. This survey shows that hedge fund managers are committed to meeting regulatory requirements and the increased demands of institutional investors. “Fund managers are working hard to deal with the challenges of compliance, in terms of capital investments, human resources and time. In Canada particularly, we have seen the cost of compliance continue to rise as managers are subject to a high level of regulation, especially as far-reaching global regulation, such as Dodd-Frank, FATCA and AIFMD finds its way across the border,” says Peter Hayes, partner and national director, alternative investments, KPMG. The survey, which is one of the largest global surveys of hedge fund managers, was conducted between May and August of 2013 and includes the views of 200 hedge fund managers representing more than $910 billion in AUM. It also included indepth interviews with managers from North America, Europe, and Asia. KPMG LLP, an Audit, Tax, and Advisory firm ( and a Canadian limited liability partnership established under the laws of Ontario, is the Canadian member firm of KPMG International Cooperative (“KPMG International”). KPMG member firms around the world have 155,000 professionals, in 155 countries. The independent member firms of the KPMG network are affiliated with KPMG International, a Swiss entity. Each KPMG firm is a legally distinct and separate entity, and describes itself as such.

Financial Operations Magazine Spring 2014  
Financial Operations Magazine Spring 2014