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IMS Asset Management Regulatory Update 2009 - Issue 2, May
Welcome to the second issue for 2009 of the regulatory newsletter from IMS Consulting, the largest independent asset management and securities regulatory consultancy in the UK. Our newsletter rounds-up some of the more important recent regulatory changes for asset managers and securities firms, focussing on FSA related developments.
We commence with the welcome news that EU legislation has been passed that will remove many investment firms from the large exposures regime once adopted by the FSA. There follows a reminder that the Contracts for Difference disclosure regime commences on 1st June.
We comment on the draft EU Directive on Alternative Investment Fund Managers that is likely to significantly change the way funds are marketed and operated in Europe. We also comment on the Turner Report on wholesale investment firms.
We then summarise a couple of speeches from the FSA’s Chief Executive, the key message being that the FSA will step up its supervisory programme, with a particular emphasis on the actions (or inactions) of senior managers at FSA regulated firms.
Recent developments in financial crime and regulatory sanctions are discussed, including large fines for Winterflood and Morgan Stanley and a prison sentence in the FSA’s first criminal insider dealing case.
The newsletter concludes with a round-up of regulatory issues relating to telephone recording, dealing commission, client assets and money, and remuneration practices.
We hope that you find this newsletter to be relevant and informative. If you have any further questions please contact Scott Wilson, Stephen Burke or Chris Rexworthy. Alternatively telephone 
020 7408 2448 to speak to your usual IMS contact.
Please click here for a PDF of the whole content of this newsletter (printer friendly version).
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Good news from Europe; Removal of large exposure requirements After many years of lobbying, on 6th May the EU finally passed legislation that allows the FSA to remove many investment firms from the large exposures regime. |
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Reminder to firms: FSA disclosure regime for Contracts for Difference to take effect on 1st June 2009 The regime will require firms to aggregate CfDs with shares. The date of implementation has been brought forward to June 2009 due to market conditions. |
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The EU Directive on Alternative Investment Fund Managers On 29th April, the EU set out the future of regulation for alternative investment fund managers. Later that day, IMS released its appraisal of the draft Directive which we replicate below. This draft Directive is likely to have a material impact on the way in which non-UCITS funds (including all hedge funds and private equity funds) are marketed in, and managed, from Europe. It will also impact on prime brokers, administrators and market counterparties. The process that has started is by no means a foregone conclusion and there will be a considerable political challenge over the coming months. We will keep you up to date on key developments. |
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The Turner Review and wholesale investment firms March 2009’s publication, ‘The Turner Review of global banking regulation’ is mainly applicable to banks. However it also presents recommendations of relevance to wholesale investment firms. This was followed by an appraisal of regulated challenges for fund managers, in a speech by Dan Waters, the FSA’s Asset Management Sector Leader. |
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Be afraid, be very afraid? In a speech at the Reuters Newsmakers event in March 2009 Hector Sants, CEO, sent a stern warning to firms to be ‘very frightened of the FSA’ as he set out how the FSA will supervise in the future. Our article on detailing the speech was originally published on 19th March 2009. |
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Board level governance requires ‘challenge without conflict’, asserts Sants as the FSA re-iterates its approach to SIF holders The FSA has announced that several applications for significant influence functions (‘SIF’) have been withdrawn after FSA interviews questioning fitness and propriety. This comes amidst Hector Sants condemning the ‘rather cavalier approach regarding risk management’ of some senior managers during the financial crisis. |
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Market Abuse: the stakes continue to increase The fines of over £4 million levied against Winterflood Securities and two of their employees by the FSA during April 2009, are a further sign of the regulator's determination that there will be a creditable deterrence against market abuse. |
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Financial crime and regulatory sanctions round-up Aside from the sanction against Winterflood Securities detailed above, the FSA has continued its campaign to tackle market abuse and improper behaviour and has published a host of successful cases brought against individuals and firms. |
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FSA rules on recording telephone conversations and electronic communications - 2009 review of mobile phone exemption The FSA is conducting a review of the exemption from the voice recording rules for mobile devices. However, any changes are unlikely to be implemented prior to 2010. |
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Use of dealing commission regime: post-implementation review The results of an FSA commissioned independent review on the use of dealing commission has been published. |
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Compliance Officers contacted regarding adequate protection of clients’ assets and money The FSA has published a letter sent to the compliance officers of all firms which hold relevant client money permissions, to remind them of their responsibility under FSA Principle 10 to arrange adequate protection for clients' assets when the firm is responsible for them. |
Reforming remuneration practices in financial services
The FSA has formally consulted on inserting a revised remuneration Code into its Handbook. This would apply to the largest banks, building societies and broker dealers – however there is also a proposal to extend the regime to all FSA regulated firms.
