Funds have become a cornerstone of modern investing — but they are quietly creating a growing blind spot in employee trading controls, one that compliance teams across the globe are struggling to address.
According to StarCompliance, traditional employee trading controls were built around direct investments in securities. Funds, however, introduce a layer of abstraction that can obscure genuine exposure.
StarCompliance recently detailed and delved into the transparency gap in the area of fund holdings.
An employee may avoid trading a restricted stock outright, yet still gain meaningful exposure through a single-stock ETF or a highly concentrated fund. In some cases, a fund may hold only a handful of securities, effectively replicating direct ownership while appearing diversified on the surface. Without visibility into underlying holdings, these exposures remain difficult — if not impossible — to detect.
This is where the blind spot truly emerges. Funds can be used, whether intentionally or not, to sidestep controls tied to restricted lists, insider information, or issuer-level monitoring. The abstraction that makes them attractive to investors is the same quality that makes them challenging for compliance.
Why existing approaches are falling short
Most firms are acutely aware of the risk, yet the tools at their disposal have struggled to keep pace with the evolving landscape. Compliance teams are frequently left relying on approaches that are difficult to scale, maintain, or validate. Many still depend on employee self-disclosure, placing the burden on individuals to flag high-risk fund activity — an approach that is both difficult to enforce and nearly impossible to verify consistently. Others have opted for risk acceptance, knowingly absorbing gaps in oversight simply because no scalable monitoring solution exists. Manual list maintenance remains common too, with compliance teams tracking high-risk funds themselves in a process that is resource-intensive and inherently incomplete.
As fund structures evolve and new products enter the market, these workarounds fall further behind, leaving compliance teams with limited visibility and mounting operational strain.
A global snapshot
Fund transparency has improved considerably in recent years. The proliferation of ETFs and greater regulatory scrutiny have made it easier to understand what lies beneath many investment products. But improved transparency has not necessarily translated into improved control — particularly for global firms operating across multiple jurisdictions.
The issue is that transparency is far from consistent across markets. In the United States, most ETFs disclose their holdings on a daily basis, setting a high benchmark for visibility. In Europe, disclosure standards are less uniform and vary considerably across fund types. In the UAE, holdings are typically disclosed periodically rather than daily, limiting any real-time visibility for monitoring purposes. For firms operating globally, this creates a fragmented picture where the data needed to monitor employee trading risk is inconsistent, delayed, or incomplete. That inconsistency is precisely where risk begins to accumulate.
Turning transparency into control
StarCompliance’s Fund Holdings Transparency solution seeks to bridge this gap by bringing underlying fund exposure directly into the compliance workflow. With visibility into the assets that comprise a fund — including daily insight into top holdings across thousands of funds — firms can assess concentration risk based on actual exposure rather than assumptions.
The capability enables firms to apply firm-defined concentration thresholds with precision, identify high-risk funds including single-stock and narrow-based products, prevent trades at pre-clearance or flag activity post-trade for review, and reduce reliance on manual tracking while improving data consistency. Because the solution aligns with existing compliance frameworks, firms can extend controls to funds, creating a more unified view of risk and improving audit readiness.
Looking ahead, StarCompliance has signalled that this is only the beginning. Throughout 2026, the company plans to expand its capabilities further in support of a more proactive, risk-based model. This includes broader concentration-based checks covering issuer-level exposure, deeper integration across all firm lists regardless of where they are maintained, and expanded coverage into trade surveillance for non-preclearance activity.
Fund Holdings Transparency represents a meaningful step forward for firms looking to move beyond manual workarounds and towards a more connected, scalable approach to managing fund-related risk.
Read the full StarCompliance post here.
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