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IMS Asset Management and Securities Regulatory Update, May 2011
“May you live in interesting times” is a Chinese proverb (or perhaps it’s actually a curse) that is regularly quoted at the outset of a piece of work (perhaps a speech, presentation or written document) in advance of the conclusion inevitably being drawn by the author that these are indeed interesting times, as firmly demonstrated by the content of the foregoing work. Interestingly, the Chinese are said to disclaim the origin of this saying. Its first reported use in the era of global media was in 1966 by Robert F. Kennedy in a speech given in Cape Town and the phrase has certainly been used quite a few times since then.
Perhaps not all of the last 45 years have been interesting. However, the period since the publication of our last newsletter (in March) has witnessed many noteworthy news events: catastrophic natural disasters, regime change (or the demand thereof) in many Middle Eastern and North African countries, the culmination of a 10 year hunt for the world’s most wanted criminal, a once in a generation royal wedding, the first UK referendum in a generation to name a few. Most remarkable were the events that made the jump from the business news to popular media and vice versa. A prominent hedge fund manager drew an insightful analogy between the behaviour of the markets and Charlie Sheen and the death of Osama bin Laden was followed by analysis in the technical media of the implications it posthumously raised for financial services firms with regard to anti-money laundering, countering terrorist financing and financial sanction considerations. And by far the most prominent example of business news making the front page of even the red tops was the arrest of Dominique Strauss-Kahn, head of the International Monetary Fund, and his subsequent resignation from that position.
For the financial services industry and the regulatory and compliance professionals that support it, the last few years have certainly been interesting, in fact more interesting than most would care for. According to a recent survey by the Chartered Institute for Securities and Investment, between January 1 and March 16 this year the UK’s Financial Services Authority issued 111 documents, totalling 1,929 pages. This comprised 15 different types of documents, ranging from formal discussion papers, consultation papers and policy statements, through enforcement final notices, "informal guidance", newsletters and speeches. And the FSA is only one part of the regulatory framework. The EU and the US were hardly quiet during this period.
Firms can be forgiven for occasionally feeling overwhelmed and we hope to alleviate some of that burden for our readers by summarising what is coming down the line through our updates. Indeed, the theme of this edition of this newsletter is deadlines. We highlight the two most pressing regulatory events at the moment for clients, the Remuneration Code and the Bribery Act 2010, both of which require action by 1 July. The next relevant deadline for many will be 21 July 2011, the final date by which investment advisers/managers in or into the US need to be successfully registered with the SEC following Dodd Frank’s changes to the exemptions available. Our note on this discusses how this deadline may have been postponed, although the SEC has not yet said anything definitive. On the subject of slipping deadlines, we also flag the FSA’s delay in the introduction of certain newly created Controlled Functions within the Approved Person’s regime. These had been due to commence on 1 May 2011. No word yet of the new implementation date. On client assets and money laundering we recap recent and impending events on these subjects. Our newsletter then concludes with its usual (although this time around briefer) discussion of recent enforcement cases.
If you have any questions regarding any of the articles below, please contact Peter Moore, Stephen Burke or Alan Leale-Green. Alternatively telephone 020 7408 2448 to speak to your usual IMS contact.
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Latest on the Remuneration Code: FSA publishes guidance and consultation in April 2011
On the 20th April 2011, immediately before the Easter break, the FSA published simultaneous guidance and consultation relating to the Remuneration Code (“the Code”) requirements for investment firms laid out in Chapter 19A of the FSA’s Senior Management Arrangements, Systems and Controls (SYSC) Sourcebook.
Incentive Based Compensation: Comparisons to Remuneration Code requirements in Europe/UK and the US
While the UK is still deliberating on its Remuneration Code guidance in relation to rules which came into force on 1st Jan 2011, the US regulatory framework established under the Dodd-Frank Wall Street Reform Act, has recently issued draft rules on the same area. Essentially the US is catching up on its International obligations in respect of pay structuring and risk management.
Bribery Act in force on 1 July 2011: No need to panic proportionality is key
At long last, on 30th March, the Ministry of Justice published its “Guidance about procedures which relevant commercial organisations can put into place to prevent persons associated with them from bribing” (the "Guidance"). A somewhat convoluted title, but in short this guidance seeks to better define the scope of the UK’s Bribery Act 2010 (“the Act”).
Letter from America: delay in SEC registration deadline?
The timeline for arrangements for private fund advisers and managers’ registration with the SEC was thrown into some confusion by the Securities and Exchange Commission (“SEC”). Last month they published a letter to the president of the North American Securities Administrators Association, Inc., stating that the SEC anticipates extending the deadline to Q1 2012 for firms to come into compliance with the registration requirements introduced Dodd Frank Wall Street Reform and Consumer Protection Act ("Dodd Frank").
The FSA’s Business Plan 2011/12 – balancing restructuring with the day job
Last month the UK’s Financial Services Authority (“FSA”) published its Prudential Risk Outlook and sister publication, the Retail Conduct Risk Outlook, as well as its Business Plan, for 2011/12. All three are of interest to regulated firms because they set out the FSA’s focus for the coming 12 months, providing a useful pointer as to what firms should be thinking about and what kinds of questions the FSA might ask, should they request the pleasure of your company in the course of the next year.
FSA announces delay to introduction of new controlled functions
On 25 March 2011, the Financial Services Authority (“FSA”) announced a delay to the introduction of the nine new ‘controlled functions’ intended to “strengthen and enhance corporate governance and risk management arrangements within firms”.
MiFID II – just when you thought it was safe
On 8 December 2010, the EU Commission launched its proposals to reform a cornerstone of EU financial services regulation - the Markets in Financial Instruments Directive (MiFID). This review is known as MiFID II and this consultation sought views of market participants, regulators and other stakeholders on a range of potential changes to the existing legislation.
Money Laundering Round-up: the final stitch up
As oft reported (even in the popular media as well as the financial press), the currency of choice for criminals and money launderers was reported to be the €500 note. In response, the British bank wholesalers have recently withdrawn the €500 note from sale citing that there is ‘no credible legitimate use’ for the note. It will, however, remain legal tender.
Client money and assets – the FSA’s CASSandra?
The events that led to the bankruptcy of Lehman Brothers in September 2008 highlighted weaknesses in the Financial Services Authority’s (“FSA”) Client Assets sourcebook. Since then the FSA has focussed on improving the regulatory regime for the protection of client assets (including client money).
Enforcement round-up: Super injunctions no good here…
After the blitzkrieg of enforcement notices in Q1 2011, the last few months have been relatively quiet. It is rumoured that a substantial caseload sits before the FSA’s enforcement team and future months will, amongst other things, bring heightened focus to client money issues.
