Asset Management Regulatory Roundup - March 2018 - Issue 5

by Dechert LLP
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Changes to the FS Register pursuant to the Senior Managers and Certification Regime

The Financial Conduct Authority (FCA) is required to maintain a public Financial Services Register of regulated firms and approved individuals, “the FS Register”.

In July 2017, the FCA published proposals to extend the Senior Managers and Certification Regime to almost all regulated firms.

Under these proposals, the FCA will only approve the most senior individual manager within firms. This means that only these Senior Managers will appear on the FS Register. Firms are responsible for assessing the fitness and propriety of their employees and ‘certifying’ certain individuals who are not Senior Managers, but whose jobs mean they can still have a significant impact on customers, firms and market integrity.

The FCA received substantial feedback on the public value of maintaining a central public record of certification employees and other important individuals in firms regulated by the FCA who, under its proposals, would no longer appear on the FS Register. This includes non-executive directors and individuals providing regulated services to customers, such as investment advisers, traders and portfolio managers.

The FCA will consult on policy proposals to address this feedback by summer 2018 and will issue an update on its work to improve the usability of the FS register, which incorporates feedback from the Work and Pensions Select Committee.

Read the FCA statement »

FINTECH: ESMA and European Commission speeches

The European Commission (EC) has published a speech by Vice President Valdis Dombrovskis, European Commissioner for Financial Stability, Financial Services and Capital Markets Union, which outlined the goals of the EC’s FinTech action plan. The three main goals of the action plan are (i) to support innovative business models to scale up across the single market; (ii) to encourage the update of new technologies in the financial sector; and (iii) to increase cybersecurity and the integrity of the financial system.

In connection with the action plan, Mr Dombrovskis announced that the Commission is to establish an EU FinTech Lab for supervisors to engage with technology solution providers and raise the level of knowledge about the new technologies. The Commission has also created an EU Blockchain Observatory and Forum and additionally intends to invite the European Supervisory Authorities to explore the issuing of guidelines to facilitate the use of cloud services.

Read the speech »

At the same time, the European Securities and Markets Authority’s (ESMA) chair, Steven Maijoor, delivered a speech explaining the two strands to ESMA’s approach to Fintech. The first strand involves monitoring innovations diligently and intelligently. The second strand is to take action in a measured way (ie, carefully to consider how best to act, weighing risks and benefits in an objective fashion). Mr Maijoor went on to address the following three key areas of FinTech: (i) the structural features of FinTech; (ii) monitoring FinTech by looking at economic function; and (iii) the challenges and opportunities for regulators.

Read the speech »

MiFID II: update on LEI implementation

The FCA has updated its webpage on the Legal Entity Identifier (LEI). From the Markets in Financial Instruments Directive II (MiFID II) implementation date of 3 January 2018, firms subject to MiFID II transaction reporting obligations are not able to execute a trade on behalf of a client who is eligible for an LEI but who does not have one. The FCA referred to a statement by ESMA in December 2017 on temporary measures in respect of the LEI for clients that are legal persons and for issuers as a result of which the FCA is required to amend the LEI validation rule in its market data processor. The FCA had previously advised that the change would not be possible before 3 January 2018. It has now confirmed that the amendment to the LEI validation will be implemented on 10 March 2018 and firms should resubmit from 12 March 2018 any outstanding transaction reports where the trade date precedes the LEI registration date.

Visit the webpage »

UK developments in financial markets, MiFID II and LIBOR

The FCA has published the text of a speech by Andrew Bailey, its Chief Executive, in which he gives an overview of the state of the financial markets in the UK as well as providing an update on the implementation of MiFID II and work on replacing LIBOR (the London Inter-Bank Offered Rate).

On algorithmic trading, which is subject to increased regulation under MiFID II, Mr Bailey said the FCA and the Prudential Regulation Authority had seen some “quite notorious examples of cases where algos are used poorly”. He stressed however that the regulators’ intent is not to stand in the way of the use of algos but to ensure that firms have robust governance, risk management and compliance standards. Used well, algos are an obvious innovation in trading.

As regards MiFID II, and while acknowledging that it is still early days in its implementation, Andrew Bailey said things appear to be going smoothly with no major operational disruptions to trading. There had been a significant downturn in OTC equity trading and there have been delays in introducing some of the measures such as the double volume cap limiting dark trading, but this is due to happen this month (March 2018). The FCA continues to monitor the effects of MiFID II.

As regards a replacement for LIBOR, Mr Bailey noted that there seemed to be a consensus that interest rate markets will, in future, be centred on the risk free rates chosen by various industry groups, such as SONIA (Sterling Over Night Index Average) in the UK and SOFR (Secured Overnight Financing Rate) in the US. He did not rule out the possibility of a form of LIBOR proxy to serve as a legacy benchmark however this is not seen as an alternative to risk free rates as the best measure of interest rate risk.

Read the speech » 

Fund distribution resources

Dechert maintains two services designed to assist managers with global fund distribution and registration.

World Compass - A global web-based service offering investment firms 24/7 access to detailed information on fund marketing, separate accounts and beneficial ownership reporting

World Passport - An outsourced solution for fund registration globally for both UCITS and AIFs

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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