Published: 21st June 2018

Of relevance to: All FCA regulated and authorised asset management firms

On 12 June, London’s Queen Elizabeth II Centre was home to the FCA Asset Management Conference 2018. The conference began with a keynote speech by Andrew Bailey, the Chief Executive of the Financial Conduct Authority (“FCA”), in which, among setting the regulatory agenda for the coming year for asset managers, he made a promise that the FCA would take action to address the unintended negative implications of the Packaged Retail and Insurance-Based Investment Products (“PRIIPs”) and the second Markets in Financial Instruments Directive (“MiFID II”) as early as next month.  

He went on to address other key topics, including Brexit – a topic that would be discussed later on in the day by part of the FCA team in charge of porting the rules and regulations out of EU legislation and into UK legislation.

There were a number of hosted panel sessions throughout the day, a summary of the ones attended are set out below.

UK Withdrawal from the EU

All FCA personnel were especially careful to maintain the government’s stance on Brexit.  Nothing remarkable was mentioned and there was little in the form of new insights. During the breakout session ‘Asset Management & UK Withdrawal from the EU’, it was mentioned that all existing regulations that firms are required to comply with, will have been or will be ported across from the day the UK leaves the European Union. The individuals leading the discussions were keen to mention that the FCA had teams working with the government to go through existing regulations, looking for references to European laws.  Where a regulation is based on a European law, an  equivalent UK law would be put in place to ensure a smooth transition.

The session also considered the subject of ‘mutual recognition’.  The FCA team were asked how this concept would work in practice.  In their response, they inferred that mutual recognition would in essence work in a similar way to how ‘equivalence’ works at present.  Another difficult question asked of the FCA was what the regulator and government are doing to try and encourage funds/fund managers to move back and set up onshore. One attendee was keen to point out that in their opinion, due to over regulation, funds had been set up in other jurisdictions and that by bringing them onshore, it would cause job creation, both directly and in supporting industries in the UK.

Market Trends

The panels during the conference were refreshingly well balanced, with individuals representing large firms, small firms, industry experts, academics and the regulator and the questions posed were diverse, covering different points of view. Particular areas of interest were the varying views on robo-advice, the use of technology within firms and new technologies like Blockchain.

Panellists were keen to remark that asset management firms, as an industry sector, are only touching the tip of the iceberg when it comes to the innovative use of technologies such as Blockchain, mentioning that the industry would be at least 10 years away from seeing any meaningful usage of this technology. This is in part due to the fact that asset management is not a sector in high demand by data scientists. The leading lights within the Blockchain world (and other such technologies) are more likely to go into other sectors or industries; a sentiment echoed by all the panellists.

Another sentiment echoed by all the panellists was in relation to the shortcomings of PRIIPs. Specifically, they were quick to be critical of the need for asset managers to provide Key Information Documents (“KIDs”) and the content that should be included in them. The mindset on PRIIPs seemed universal as it was mentioned by Andrew Bailey in his keynote speech.

Conduct and Culture

Another topic the panels felt balanced on was that of conduct and culture within the asset management industry. The difference in cultures between a large multi-national firm and a boutique one might be obvious due to the size difference, but it was still interesting to hear the perspectives and approaches taken to instil a compliance culture from both points of view. Understandably, the large firm in attendance was very much process driven, as a firm of that size would need to be. Their CEO said during the panel that the still wants his middle management to have the flexibility to input their own judgement.

On the other hand, the CEO of the boutique firm in attendance, talked about how (due to their much smaller size) he knew the majority of employees and was able to directly influence the culture of the firm rather than have to rely on middle managers to do so.

Refreshingly, Octavius Black, CEO of The MindGym, provided input from an academic point of view. He was able to quote studies, facts and figures that backed up both points of view.

It was not mentioned during the conference, but the FCA has listed out “Five Conduct Questions” to help a firm put a robust conduct and culture framework in place. These are:

  1. What proactive steps do you take to identify the conduct risks inherent within its [the firm’s] business?
  2. How do you encourage the individuals who work in front, middle, back office, control and support functions to feel responsible for managing the conduct of their business?
  3. What support, broadly defined, do you put in place to enable those who work for it [the firm] to improve the conduct of their business/function?
  4. How do the Board and senior management gain oversight of the conduct of their organisation and consider conduct in their deliberations?
  5. Have you assessed whether there are any other activities that the firm undertakes/way in which it operates that could undermine strategies put in place to improve conduct?

Disappointingly, SMCR was not mentioned much during the discussions. No firm timeline was given besides the fact that final rules will be released during the summer.

The FCA’s MiFID II Supervisory Priorities

The FCA were clear to indicate their priority areas for supervisory review in relation to the implementation of MiFID II. The main areas are:

  • Product & Cost Disclosures;
  • Research Unbundling; and
  • Transaction Reporting.

It was indicated that these particular areas would be subject to thematic reviews over the coming months. Part of these thematic reviews would include a questionnaire being sent to approximately 400 firms, which would contain questions on the areas mentioned above. The FCA didn’t clarify how they had selected or were going to select the firms that would be receiving the questionnaire but said that they were aiming to get a snap shot across the sector.

Further details

If anything mentioned in this article raises questions or there is something you would like to discuss further, please get in touch with us at info@complyport.co.uk.

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