Investment Management in Financial Services UK
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Culture in financial services firms has moved towards the top of the agenda for regulators, investors and consumers in the wake of excessive risk-taking by some firms in the run-up to the financial crisis and a string of misconduct scandals. Despite this, there can be a tendency on the part of some in the industry to see culture as “someone else’s problem”. A Deloitte survey on culture in banking carried out in 2013 found that 65% of senior bankers believed there were significant cultural failings across the industry, while only 33% believed the same of their own bank.
Cooling the buy-to-let spending spree | PRA proposes higher standards and capital charges for buy-to-let mortgage lending
The PRA published a Consultation Paper and draft Supervisory Statement on 29 March on more strict standards for buy-to-let lending. The proposals coincided with the FPC’s statement on macroprudential risks on the same day, which included concerns about the buy-to-let property market.
The FCA published its 2016-17 Business Plan on 5 April. The document is shorter and less detailed than in previous years, with only a brief Risk Outlook section, and makes limited announcements of new work. This may reflect the fact that the new CEO, Andrew Bailey, will not join the FCA until July, although as a member of the FCA Board, he will already have had an opportunity to influence the Plan. Like last year, the FCA has continued with its magic number of seven priority areas, rolling over five areas and prioritising two new areas – wholesale markets and the provision of advice.
The Senior Managers and Certification Regimes (“SMR”) and new Conduct Rule requirements are high on the agenda for many of our clients’ Audit Committees following their landing earlier this year. The changes, impacting banks, building societies, credit unions and designated investment firms, are designed to improve professional standards and culture. They have led to a flurry of activity across the sector in changing and implementing policies and processes to enable compliance.
New investor protection rules under MiFID II are set to reshape investment managers’ product and distribution strategies in Europe. As the impact of the changes will vary across countries and distribution channels, there is no single optimal approach for firms to adopt. Investment managers distributing funds across the EU will need to think carefully about their strategy in each market. Innovative solutions around online platforms and robo-advice may offer some answers. While the final details of the rules are still pending, policymakers are considering a potential delay of the MiFID II go-live date until 2018. But firms still need to prepare now to be ready in time.
Just in time for Christmas, the EBA published its long-awaited report setting out recommendations for a review of the current prudential regime for investment firms. Produced at the request of the European Commission, and in cooperation with ESMA, the report identified a number of issues in the current application of the CRD/CRR requirements to investment firms (including a lack of adequate risk sensitivity and the complexity of the framework stemming from the current categorisation of firms based on MiFID definitions) and suggested a new approach to their categorisation. The latter would distinguish between systemic and "bank-like" investment firms, to which full CRD/CRR requirements should apply, and other investment firms namely those that are not considered ‘systemic’ or ‘interconnected’. For the ‘non-systemic’ firms, the EBA recommended that requirements should be tailored to reflect the risks specific to their activities.
Some say that technology revolutionized knowledge. Once controlled by a privileged few, knowledge is now becoming available to everybody. What if the same were about to happen with trust?
Defining vulnerability and ensuring staff understand and apply the definition has long presented a challenge to firms.
One of the Financial Conduct Authority’s (FCA’s) main observations, in its occasional paper (number eight), was an acknowledgement that vulnerability is difficult to define and that currently firms apply a range of definitions. It concluded that vulnerability itself is a very fluid, changeable state but for some individual consumers it can indeed be a permanent state. Nonetheless, it made clear that the firms need to work around these difficulties as access to services for all consumers is seen as central to core conduct.
We explore some of the challenges a firm may face when implementing a vulnerability definition across an operation.
The Financial Conduct Authority (FCA) published terms of reference on 18 November 2015 for its market study into asset management. The study will focus on: (i) how asset managers compete to deliver value for money; (ii) whether asset managers are willing and able to control costs and quality along the value chain; and (iii) the effect of investment consultants and other advisers on competition for institutional asset management. Across these topics, the FCA will also consider whether any barriers to innovation or technological improvements are preventing investors from getting better value for money.
MiFID II will have significant and wide-ranging implications for the strategy, operations, conduct and governance of a broad range of firms in Europe. It raises many important questions for the investment management industry. What are the key challenges and implications of MiFID II? How can investment managers gain a competitive advantage? And how much progress have investment managers made in implementation? We discussed these questions with 15 investment managers and two independent external experts to inform our new paper Navigating MiFID II - Strategic decisions for investment managers. The key findings are highlighted below.