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How does the due diligence of fund distributors improve the financial industry standards

In recent weeks, we have highlighted the multiple benefits of investment managers collaborating on distributor due diligence, rather than each having to compile, distribute, collect and analyse its own questionnaire. You can find our previous articles on the financial and resources benefits, as well as the quality and compliance improvements to be gained by using the ume platform, here.

With regulators, particularly in the EU, looking to increase investor protection and the increased focus on compliance with money laundering rules, the industry gains from working together, through a more efficient process and better results that lead to reduced risk. Regulators want distributor due diligence questionnaires to serve as an education, setting a bar for the whole of the industry from producer to distributor.

Collaboration, in the form of investment managers agreeing on the questions to ask their distributors and sharing an online platform to share responses, increases the quality of the answers they receive and helps distributors worldwide to improve their own practices. The collaborative approach also improves understanding of the legal requirements and what needs to be done when DDQs reveal gaps or distributors that represent too much of a risk when benchmarked against shared standards. For distributors that do not improve, eliminating them from distribution networks should improve trust and standards over time.

As more fund groups and distributors join the ume platform, the greater the added value throughout the chain. That is important as the industry faces new challenges, some in the very near future. We expect fund groups to place greater emphasis on ESG issues in their distribution chains. As they and their fund managers face increased scrutiny and reporting on climate risk, they will want to ensure that distributors understand and accommodate ESG concerns and do not greenwash their credentials, nor the products they offer.

Already ume works actively with the world’s largest fund management groups and the largest number of distributors worldwide of any due diligence platform. The number of distributors who receive and respond to ume due diligence questionnaires will have tripled this year. It’s a fast- growing club in which everyone benefits from membership.

If you’d like to find out more about Club ume, we’d love to speak to you.