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IMS Asset Management and Securities Regulatory Update 2010 - Issue 5, November
There are many headline grabbing regulatory developments that firms will be focusing their attention on at the moment. From the twin European Directives (Remuneration and AIFMD), to the need for many firms to apply for SEC registration and, not to be forgotten, the remodeling of the supervisory landscape, both in the UK and Europe.
However, even with all these headline grabbing developments, firms and their management should not be fooled into thinking that regulators attention is distracted from the day job of supervising regulated firms, further policy development, and the enforcement of wrongdoers. If anything the opposite is true. The FSA appears intent on disproving any view that it is now a lame duck regulator. Across the industry we are seeing an increased use of intrusive supervisory powers and requests for Section 166 skilled person work; new policy initiatives and target intervention in conduct of business areas; and increased investigations and enforcement action relating to potential market abuse.
Therefore Senior Management need to remain focused on ensuring their understanding of compliance risk, their policies and systems for mitigating those risks and their compliance activities, remain robust and well evidenced.
From a practical perspective the end of the year is often the time that firms reassess the validity of their compliance arrangements, prompted by those annual processes such as reconsidering the ICAAP, producing the annual SYSC report, and providing the annual MLRO report. With a more observant and challenging regulator than we have seen in recent years, it is important that firms consider these areas robustly rather than simply roll over the status quo. Even the usual pre-Christmas reminder of the firm’s gifts policy has an added piquancy this year as management consider the implications of the Bribery Act and strive to ensure they have systems in place to meet the stringent legislative requirements.
Although it is a little early to mention Christmas, perhaps we can take this opportunity to wish all our clients and friends a successful end to 2010.
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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..........................................................................................AIFMD - the end of the beginning
After almost two years of political wrangling and frequently heated discussion, on 11th November 2010 the European Parliament voted to adopt the directive on Alternative Investment Fund Managers (‘the Directive’).
An update to the extended Remuneration Code proposals – the clock is ticking…
The Committee of European Banking Supervisors have now published their draft guidelines on remuneration. As expected, the guidelines are strict on the conditions and structure of variable pay from a risk management and solvency perspective but add little surprise in terms of additional information, as much of the guidance already features in the FSA's draft Remuneration Code.
More expected of more: FSA extends approved persons regime and outlines a broader skillset required of senior management
On Friday 24th September 2010, the FSA released its Policy Statement (PS10/15) on "Effective corporate governance (Significant influence controlled functions and the Walker Review)". This Policy Statement confirms the revised definitions for certain Significant Influence Functions ("SIF") under the approved persons regime and also standards for effective corporate governance as proposed in the related consultation paper CP10/3 released in January 2010. .
Client assets - new FSA rules for 2011
One of the FSA’s regulatory themes for 2010 has been a focus on client money and assets held by regulated firms. In January, the FSA sent a letter and report to the CEOs of investment firms able to hold client money or assets, drawing attention to FSA’s concerns in this area.
FSA issues guidance on leaks
The FSA has issued a warning sign to regulated firms, and further guidance to unregulated firms and issuers regarding leaks to the media in Market Watch 37. The FSA are particularly concerned about “strategic leaks” i.e. the deliberate leaking of inside information sanctioned by an issuer's senior management or its advisors with the intention of gaining a strategic advantage when the stock is in play through media positioning.
UK Bribery Act 2010
The Bribery Act 2010 ('the Act') was enacted on 8 April 2010 and will come into force in April 2011. The Act sets out a range of criminal offences in connection with corrupt payments to public officials and private individuals anywhere in the world.
New European System of Financial Supervisors
The European Union is to adopt a new financial supervisory structure from 1st January 2011. This new framework represents a considerable shift in power from country specific regulators such as the FSA, towards centralised supervisory authorities.
Short Selling and OTC Derivatives Update
Following the completion of the European Commission’s (“EC”) consultation on its pan-European short selling proposals which were published in June 2010, the EC has published a proposal on draft regulations on short selling and Credit Default Swaps (“CDS”).
Enforcement, regulatory sanctions and financial crime round-up
September and October were comparatively slow months for enforcement activity in the wholesale sector. However, the FSA has carried on with their ‘credible deterrence’ approach involving large fines to big institutions with a £17.5m fine for Goldman Sachs.
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