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IMS Asset Management and Securities Regulatory Update 2010 - Issue 4, September
Welcome to the new look IMS Asset Management and Securities Regulatory Newsletter and IMS website!
The UK regulatory environment and requirements continue to change apace and IMS continues, through our regular e mail updates, to strive to keep you informed of all the important developments and enforcement actions relevant to you and your business. If you have any comments about our new look please e mail us your feedback.
IMS Group Director Chris Rexworthy was quoted in a recent edition of Financial News as saying that the FSA’s proposed remuneration code was a case of apples and oranges. For those of you who think he may have invented a new form of rhyming slang, we explain below.
Bank’s prop. desk profits are calculated by marking to the market the often complex and regularly long-term financial instruments they have invested in. A bonus based and paid on these market valuations may turn out to be inappropriate if the value of those instruments subsequently falls. Alternative investment managers, however, typically pay bonuses that are linked to the cash fees they have invoiced, received and banked. The fruity quote was intended to draw-out this very real distinction and argue that the justification for remuneration code requirements in respect of banks really does differ strikingly to when considering the extent of such risks at alternative managers.
Notwithstanding, there remains significant room for interpretation in relation to how the FSA’s draft code will apply to LLPs. At the heart of this are the proportionality opportunities the FSA proposes. Proportionality table 3 provides the range of requirements that firms must adhere to on a “comply or explain” basis, and within this table are the most contentious rules which relate to deferral of bonuses and payment in non-cash forms. Where firms can demonstrate that individuals already genuinely share in the risks and rewards of the firm’s business, and that clients are protected (through high water marks to name one mechanism), an “explain” rather than “comply” approach may well be defensible. As with many FSA developments, it will be the approach taken by supervisors rather than the wording of the rules in question that will be crucial.
As you would expect, this newsletter includes a detailed article on the requirements of the Code and firms in scope will need to consider its requirements very carefully long before the end of 2010.
The Remuneration Code is clearly not the only regulatory development currently on the agenda. Indeed it is one of many in play in the UK, Europe, the US and globally which are detailed in this newsletter, that originate directly from the financial crisis.
If you have any questions regarding any of the articles below, please contact Peter Moore, Stephen Burke or Chris Rexworthy. Alternatively telephone 020 7408 2448 to speak to your usual IMS contact.
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..........................................................................................Judgement, focus and stability – the FSA makes way for the PRA and the CPMA
On 26th July 2010, the Treasury published their consultation paper under the subtitles “judgement, focus and stability”. The consultation paper describes the changes to the Bank of England and the creation of the Financial Policy Committee as the macro-prudential authority.
SEC Registration for Non-US Investment Advisers: IMS Consulting brings you the "If, When and What"
The Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Reform Act”) has finally arrived. Further to a rumbling financial reform bandwagon in the US, President Obama signed the Reform Act on 21st July 2010.
Remuneration Code: Proportionality is key
The UK's Financial Services Authority ('FSA') has published consultation paper CP10/19'Revising the Remuneration Code', which sets out proposed revisions to the Remuneration Code (the 'Code') introduced at the beginning of this year.
Transaction reporting for investment managers: recent developments and priorities at September 2010
A number of recent enforcement cases have served to emphasis the critical importance to the FSA of the integrity and completeness of the transaction information that firms are required to send to it, under the transaction reporting regime (at chapter 17 of the FSA’s Supervision Sourcebook or “SUP”).
AIFMD - EU Parliamentary vote looms
To recap, at the end of May 2010 the European Parliament’s ECON Committee (“the Parliament”) and The Council of the European Union – Economic and Financial Affairs Council (“the Council”) both separately reached agreement on their own version of the AIFMD. There are, however, many and important differences between the two versions.
FSA comments on the marketing of unregulated collective investment schemes
The FSA has revealed the findings of a project which has highlighted concerns about the distribution of unregulated collective investment schemes (“UCIS”) by some small firms.
Short selling, a recap at September 2010
Short selling restrictions and position disclosure continues to be high on the regulatory agenda in the wake of the economic crisis of 2008 and more recently, concern over market volatility in Eurozone sovereign debt, and the debate over the extent to which the use of credit default swaps (CDS) referenced to Eurozone sovereign debt, exacerbated this volatility.
Enforcement, regulatory sanctions and financial crime round-up
Our round-up of some of the more relevant cases from the past two months features sanctions against approved persons that were found to be not fit and proper, a fine for RBS group companies over anti-money laundering systems and controls failing, a fine for Société Générale over transaction reporting failures and three market abuse cases.
"And finally"...regulatory returns update: ONA submissions become mandatory, Firms Online is decommissioned and the abolition of large exposures reporting
ONA was launched by the FSA in June 2010 and allows firms to submit certain regulatory applications and notifications online. These include Approved Persons, Appointed Representatives, Variations of Permissions, Passports and Waivers.
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