Regulatory Round-up | March 2019

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  • 38 mins 42 secs


  • Hamish Purdey, CEO, Intelliflo
  • Hannah Doherty, Legal Consultant, HD Legal & Compliance

Learning outcomes:

  1. With Brexit looming will it impact regulation in the UK
  2. Advantages of technology for advisers
  3. What to expect and how to be best prepared for new regulation in 2019


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PRESENTER: Regulation is constantly evolving, so it can be hard to stay on top of the new developments and requirements, but how can technology help? So in this, the sixth of our Akademia compliance workshops, we’ll explore this further, focusing on what’s happened in the post-MiFID II world, GDPR, SMCR, what to expect for the rest of the 2019. Joining me to discuss will be Hamish Purdey, CEO Intelliflo, and Hannah Doherty, Legal Consultant, HD Legal & Compliance. There’ll be three key learning outcomes: with Brexit looming, will it impact regulation in the UK; advantages of technology for advisers; and what to expect and how to be best prepared for new regulation in 2019. But first we start with an overview of the new regulation for 2019 so far.

So Hannah, let’s start with an overview of the regulation so far. What’s happened in 2019 and how are people responding?

HANNAH DOHERTY: Well, you’d think with Brexit that the FCA would have had their hands full, but actually they’ve been very busy issuing guidance on describing fund objectives and crypto assets, so there’s actually an awful lot for firms to take into account.

PRESENTER: So what would you say are the main regulatory changes people should be aware of then?

HANNAH DOHERTY: Well asset managers are being called to task by the FCA, because they haven’t been communicating with their clients clearly in terms of what their fund objectives are. Now they’ve been asked to be more clear about that. And thankfully, as well as some FCA guidance, there’s some useful guidance from the Investment Association that should fund managers from falling into the jargon trap.

PRESENTER: Well, you mentioned Brexit, and it is just around the corner, so do you think anything is likely to change?

HANNAH DOHERTY: Well one thing is significant thing is how relevant guidance that’s been issued by the European supervisory authorities will still be for firms going forward. And that impacts on firms’ anti-money laundering controls.

PRESENTER: So then to recap what would you say are the main issues people still face when it comes to the likes of MiFID II and SMCR?

HANNAH DOHERTY: Well, the unbundling rules have been contentious from day one. We’ve had some colour from the FCA as to how they’re bedding in. And also on the senior manager and certification regime, we’ve got a little bit more feedback from the FCA on what they consider proper standards of market conduct to actually mean.

PRESENTER: So then what happens if it goes wrong, if people don’t comply with this regulation?

HANNAH DOHERTY: Well we’ve actually had a decision from the FCA just recently, and that’s where a fund manager was found not to have observed proper standards of market conduct. And he also hadn’t acted with due skill, care and diligence. That was a very high profile case and there are a lot of takeaways for firms.

PRESENTER: Hannah, thank you. Well that’s what’s new this year, so now let’s turn to Hamish to find out how technology can help. So Hamish I want to start with MiFID II, and what do you think have been the key issues for people and what kind of solutions are out there to help people?

HAMISH PURDEY: The issues regarding MiFID are mainly about cost disclosure. And some of these can be quite hard to produce in terms of the amount of data that’s required for advisers to really disclose to their customers the full gamut of costs that have been incurred. So technology can help. There are some limitations, certainly some legacy assets and some assets that are held off platform are more difficult. But for us it’s really about adoption. So it’s about how do customers ensure that their data assets are as up to date as possible and that they really tend to those assets and they ensure that the customers’ data that they hold is as accurate and as high quality as humanly possible.

PRESENTER: So can you give me some examples of how technology has been implemented in this situation?

HAMISH PURDEY: So from our perspective it’s about aggregating data from multiple sources, and that’s about adoption. So it’s about ensuring that our customers have connected our solution to the majority of platforms that provide this data. Some it’s hard; it’s not always incredibly simple. So from our perspective it’s about making sure that customers squeeze the asset on whatever technology they have so that they ensure that the technology that they’re paying for that they get great access to it and they use it as much as humanly possible.

PRESENTER: Well, the 3rd of January this year saw the PROD rules take effect. Now we haven’t covered these yet on any of our regulatory roundups, so what exactly are these? What issues do they raise and again what’s out there to help people?

HAMISH PURDEY: Yes and again it comes back to data and adoption. PROD rules are about suitability, and they’re about ensuring that customers are put in the right buckets and not just put into general buckets. And some of the platforms have done some good work in this space in our view in terms of ensuring that the products are the right products for different types of customer. But again it comes back to customers holding the right level of data and the most accurate amount of data possible about their end users.

PRESENTER: So let me get this straight. The PROD rules, that’s Product Intervention and Product Governance Sourcebook, but why was this brought into play in January?

HAMISH PURDEY: At the end of the day this is all about customer outcomes. And what we’re trying to do, and hopefully the regulation isn’t as burdensome as it might seem, but it’s about having customers get the right outcome from their advisers and from their financial wellbeing. So what our technology helps achieve with this is to ensure that our customers have the realm of data that they need in order to make the right decisions on behalf of their customers.

PRESENTER: Well, let’s move onto GDPR now, and I think no one’s escaped without realising what this is. Since it’s been brought in people have been inundated with requests to verify whether they can use their data or not. What sort of issues has this raised, are people responding well to this and what are the challenges they face with it?

HAMISH PURDEY: I think GDPR has been a really good set of regulation. I think our data asset as humans in the 21st century is pretty important. There’s obviously been some high profile problems in terms of companies using data incorrectly, and we’ve all seen that in the press. So I think companies, and especially the advice industry, ensuring that they understand what data assets they have, how they’re looking after that asset, how they’re maintaining it, and also most importantly how they’re securing it, to ensure that again the customer has the right outcome. And the outcome we’re looking for is data integrity, data security but also data quality, and ensuring that our customers have the right policies and procedures to ensure that happens.

PRESENTER: So what sort of challenges do people face, or do you think people are on top of it now because it has been so widely publicised?

HAMISH PURDEY: It’s still very hard. And I think a lot of our customers have still got more to do. A lot of our customers have done really good work in this space, but some have still got more to do; especially legacy books and books of business that aren’t as up to date on modern day platforms as they might be. But I think it’s about having a data culture within the business. It’s about having an accurate map of where data comes from, and where it starts and stops, and more importantly how it’s handled. And I think GDPR has been fantastic in bringing that process and procedure to the fore and ensuring that businesses are seeing it as a real business risk today.

PRESENTER: Well you mentioned how it’s been handled, so can you give me some examples of when it goes wrong, what happens, what have people been experiencing?

HAMISH PURDEY: Yes, and again I think it comes back to adoption, in that there are tools out there to help handling of data. We know that paper and email and filing cabinets are inherently insecure, and we know that mistakes can happen. And certainly emailing customer sensitive data is incorrect and certainly shouldn’t be done. Systems can help. And, you know, whether it be the delivery of data via client portals, whether it be the delivery of data automatically out of systems, once systems have got the right level of data in it, and the data is accurate and the data is high quality, then we’ve seen customers being able to really improve their businesses and improve their business practices off the back of this.

PRESENTER: So then how best would you advise to avoid data breaches?

HAMISH PURDEY: It’s a big risk. And it’s an area of the business that should be under constantly scrutiny. And it’s a multifaceted answer to the problem. I think fundamentally the quality of the data has to be high so that to begin with you’ve got a really good coherent strategy as to how to maintain and manage the data. But more importantly you’ve got to make sure that you handle the data in the most effective and efficient way. You know, sending data even via the post, but certainly by email is really prone to error, and it’s a really big issue, and now with GDPR it’s actually non-compliant. Training is the other really huge issue as far as this is concerned, so ensuring that staff are really aware of the fact they are handling sensitive data and the fact that they are putting the business potentially at risk. And really also looking critically at the policies and procedures inside the way the business runs that do these procedures actually need to take place, and how can systems help in terms of the delivery of that data in a more secure and a more automated way.

PRESENTER: So moving on to SMCR now. And there still seems to be a lot of confusion around this, so what records do managers need to take for the duty of responsibility?

HAMISH PURDEY: I think this is largely around documentation and really accountability. So again we come back to what’s the core rationale for this, and the core rationale is creating a better client outcomes. And how do firms ensure that management of the business is conducted in a way that is documented and is accountable and that things don’t slip through the cracks and that, you know, roles aren’t shared. So from our perspective it’s about version control, and it’s about documentation. And obviously version control of paper and so forth is hard, if not impossible, and evidence of compliance is hard, if not impossible. So we think technology has got a huge role to play in this space, especially in terms of ensuring that where compliance needs to be evidenced in the event of an audit etc. that the technology can really assist in that space.

PRESENTER: So how does technology fit in exactly, just give me examples of how it works?

HAMISH PURDEY: So making sure that responsibilities are designated within the business, and when people move or change roles that workflow exists to ensure that someone else knows that they are now responsible for a certain aspect of the business. There are a number of solutions out there that do this. We’re partnering with a number of them at the moment to try and ensure that our customers have got the ability to make this process the most efficient within their own business.

PRESENTER: And what sort of issues arise if people use paper and version control?

HAMISH PURDEY: It’s impossible to evidence adherence isn’t it? And the core benefits that technology give in terms of who made the change, when they made the change, why they made the change and what change was actually made, really does help that evidencing of how the business has evolved.

PRESENTER: So moving on to RMAR reporting. Now again we haven’t covered this in regulatory roundups. So can you just give me, explain to me what exactly it is, what we should focus on.

HAMISH PURDEY: Not a lot has changed, but I think it keeps coming back to adoption. Customers are paying for solutions sometimes they’re not using. And so RMAR, our system for example helps with about half of it when it’s implemented properly. So if you’re correctly tagging income within the business, you’re tagging it to clients, this creates an enormous amount of management information within the business, and it creates a better outcome in terms of the way businesses run. But then also the way that compliance with regulation is able to be achieved. So for us it’s about squeezing the lemon of the technology asset to ensure that the technology that’s being paid for is actually being used within the business.

PRESENTER: So what sort of issues or challenges do advisers really face when it comes to this?

HAMISH PURDEY: I think it’s the challenge of compliance. And I think it’s making sure that the process of compliance or the cost of compliance is as small as possible, and the data is as accurate as possible. And when the systems are properly implemented and are properly adopted then there are a multitude of benefits that come from it. Customers should be aware for their own segmentation and their own client outcomes in terms of what income they’re receiving from what clients, and on behalf of what products and what providers. So from our perspective it’s about how does the adoption of that technology then assist saving time later on and ensuring more accurate compliance with the regulations that are out there.

PRESENTER: So let’s move on to the role of technology now in helping with regulation and compliance. So what sort of solutions are on the market, how new are they and how much is the uptake you’re seeing with people?

HAMISH PURDEY: I think it’s a holistic corporate problem, and we like to talk about the corporate data model, and the understanding of data assets within the entire business, and the adoption and utilisation of those. And we all use technology in our private and our business lives that we don’t fully utilise. And I think a lot of this is about ensuring that systems are properly adopted and systems are properly implemented, and then the benefits that come from that mean that we can comply with regulation more effectively. We can report more effectively to our own internal stakeholders, whether they be management committees or boards or external investors, to ensure that we do comply with regulation, but importantly we run a better business, and at the end of the day we’re trying to create a better client outcome. And if we do the fundamentals properly, and we understand where data starts and we understand where data stops and we understand how data is handled, then we’re going to achieve that outcome.

PRESENTER: Technology can be daunting though for many people. So, for advisers, what’s really the advantage of taking on this challenge of new technology?

HAMISH PURDEY: It’s about business efficiency for us and we like to think we can help. There’s lots of resources, both for our solutions and for other solutions, out there in terms of trying to get customers to take on the entire technology challenge, and really take it in bite size chunks. Because you’re right, it is daunting. It’s hard to go from zero to one. But it’s easier to go in small chunks, and to take on a little bit of improvement, which might take a little bit of time today and might be non-productive time it seems, but actually saves time in terms of reporting or how we comply with regulation in six or 12 or 18 months’ time. And in doing that actually creates a better business and a better process along the way.

PRESENTER: Well I imagine with all the new regulation that’s out there, and come about over the last 12 months or more, that people who feel, that haven’t adopted this technology maybe feel like they’re drowning slightly. So where do they even start?

HAMISH PURDEY: For us, it’s about the building blocks, it’s about client data, and it’s about ensuring that access to client data is accurate. That clients have got access to it themselves, so they can actually self-police to a certain degree. So the adoption of client portal technology is really important in this space. But it’s about taking small steps, because a small step taken once a week means that in a year’s time the business can be in quite a different shape. And we think technology has a huge role to play here, but it’s about efficient adoption and efficient implementation of it. Because we can develop all the greatest code in the world, but if it’s not used it’s not necessary.

PRESENTER: And whose responsibility do you think it is to adopt this technology? Should the boards know about the technology, is it all down to the CTO, who should take responsibility?

HAMISH PURDEY: It’s a fantastic question, and I think one that is providing more challenge in business these days. GDPR has gone to board level in terms of what is sometimes a fairly boring IT operational question, but it’s now becoming a board level issue. Boards have been worried about IT security risk, and they have over the last couple of years, obviously with some high profile issues, have started asking probing questions about that. But it’s certainly our view that the benefit that can come from efficient IT operations provides almost a better business opportunity and business challenge that boards should really encourage. And it’s a really important business issue these days. How we manage and monitor our own data is both an efficiency issue, but it’s a client outcome issue.

PRESENTER: Regulation is evolving so quickly, there’s constantly new things, new challenges people have to meet, so how can technology, or does technology grow and evolve alongside the regulation?

HAMISH PURDEY: Yes it does, and we would probably expect this to. We would suggest that external technology is probably better than internal technology from that perspective, in that you do get the economies of scale of thousands of users and thousands of firms using technology platforms. Internally built or bespoke solutions are more expensive to maintain and manage, and really understand how regulatory change can affect the outcome that’s been required. So from our perspective it’s about choosing the right partner, but ensuring they’ve got the right ecosystem as well. So connectivity between software is a big issue these days, and companies that have got strong APIs, or application programming interfaces, which is really how computers talk to each other effectively in the 21st century, mean that systems can talk to each other and provide extra levels of efficiency and extra levels of integration between businesses.

PRESENTER: And for people who want to implement this technology, what are they looking at in terms of costs and time, how long will it take to implement, because that might be holding a lot of people back, they’re concerned that it might be very expensive to do?

HAMISH PURDEY: It depends. It depends on the scale of the customer. It depends on the scale of the solution. We would definitely recommend though that investment upfront in time and energy to ensure proper process around data quality and data adherence provides enormous levels of benefit over time. So we’re pretty excited about how we can help customers in this regard. And customers shouldn’t be daunted. The solutions are out there, the solutions are reasonably inexpensive when you think about it as a percentage of salary. We give people a car and we give people a desk; we’ve also got to give them the right technology tools to do their jobs effectively.

PRESENTER: And I imagine that over time cost savings is one of the big advantages of technology, you see that in every industry.

HAMISH PURDEY: Yes, it’s about business efficiency and how can we help customers scale their businesses as well. How can we scale the typical advice number of 100 to 150 clients, how can we scale that up? And how can we help customers do that in the most efficient way, with a real consciousness of their data asset, which is a real business asset in the 21st century.

PRESENTER: So, looking to the future now, and what’s your outlook for 2019, what regulation is coming, what do people need to be prepared for?

HAMISH PURDEY: I think there’s still a little bit of hangover from 2018 to begin with. So I think continued compliance with MiFID and GDPR. I think there’s still some work to be done for some of our customers in that space. We still think that fundamental work on the data asset is a really important one. And one that our customers should really again take to board level and report at board level. SMCR is probably the key external new piece of regulation in 2019, but from our perspective it’s about fundamentally creating good quality businesses. We’re looking for client outcomes, and client outcomes will come as long as customers really adopt and customers really implement systems effectively and then tend to the asset. So ensure that it’s not a one and done, that resources are applied on a continual basis to ensure that these data assets are looked after.

PRESENTER: Well, we are almost out of time, so if we could just finish with your final thoughts, what you think the viewers should take away from this session.

HAMISH PURDEY: Really around technology adoption. We all pay for technology that we don’t use, and in many respects our vendors are here to help. We as a firm put a lot of pressure on our vendors to say well we need to keep getting enormous amounts of value out of the solutions that you provide for us, and we like to think we help our customers too. So it’s about squeezing the lemon, and ensuring that the technology that’s there is being used to the fullest. And it’s a pretty simple requirement, but it does take lots of small steps. And again it doesn’t have to be overly daunting. It can be lots of small things that over a one, two, three year period add up to a fundamentally better business.

PRESENTER: Super, Hamish, thank you. Well now let’s turn back to Hannah to talk about the future of regulation. So Hannah what new regulation is coming for the rest of 2019?

HANNAH DOHERTY: Well going back to 2017 the asset management market study final report found that consumers didn’t know what to expect from their funds. And also they didn’t know how to assess whether they were performing well or badly. Fast forward to February 2019 and the FCA have issued some rules and guidance. They’ve issued some new rules and guidance firstly on benchmarks and secondly on how fund managers should describe their fund objectives. So asset managers are being called upon to help consumers understand how their fund works so that they can make better investment decisions. The FCA wants fund managers to explain how the fund works but in consumer friendly language. They found that some fund managers are guilty of just copying out the prospectus. They’ve said that language that’s appropriate for prospectus, because it gives a good legal definition, might be comprehensive from a legal perspective, but unfortunately it might be incomprehensible to an investor. And they highlighted terms like transferrable securities and collective investment schemes. And they said it’s up to fund managers to describe their objectives, their investment strategy and then their investment policy in a concise way without using jargon so that a retail investor can actually understand the produce.

Now, when they consulted on this guidance, the FCA got quite a bit of pushback from asset managers. They said that unfortunately it’s the way of the world that investment terms are complex. And they asked for more examples of good and poor practice. They also asked for a glossary of consumer friendly terms. But the FCA decided not to do that. They said that it’s up to a fund manager to describe its fund objectives in a way that an investor can be reasonably expected to understand. But what they did do was welcome work by the Investment Association. They’re trying to help their members to explain their fund objectives in a way that’s clear so retail investors can understand it. And then right on cue after the FCA had published their guidance, the Investment Association published theirs, and that’s called fund communications clarity of language in fund documentation. It does exactly what it says on the tin.

What they’ve done is conducted consumer research. They’ve pointed out some investment terms that consumers simply don’t understand. A lot of consumers have a big problem knowing what yield means, for example, and passive investing, but the top prize for a completely incomprehensible terms was bottom-up, top-down, which no consumer understood. So this is a really useful resource for fund managers going forward, because they’re going to have to try and meet the FCA’s expectations in its drive for clarity.

Separately the FCA noted that a lot of fund documents now refer to what they said is non-financial objectives, like social or environmental objectives, and indeed some fund documents refer to targeting a non-financial return. And the FCA said that if that’s the case, then a fund manager needs to set that out in their fund documents in a way that’s clear, fair and not misleading. And they have to tell their investors how they will be able to measure whether those objectives have been met, and they have to report back to the investors on a regular basis to say how those objectives are doing. Now that’s all a lot to take in. It’s actually come in as and when that guidance was published in February, so as of now fund managers need to be looking at their documents and seeing that it complies with that guidance.

PRESENTER: And in terms of Brexit, what do we need to watch out for?

HANNAH DOHERTY: Well, as you know, the European supervisory authorities issue guidance on various pieces of legislation, like MAR and MiFID II. And the question arises as to whether that guidance continues to have any relevance after Brexit. Of course the legislation itself is going to come into UK law as EU retained law, but the FCA consulted on whether that guidance has any value going forward, and the answer is very much yes. They will expect firms to take that guidance into account when they’re applying that European legislation, but they want them to do so sensibly and purposefully. They realise that there will be some changes to the underlying legislation because of Brexit, but that isn’t an excuse for firms to not comply with that guidance. Helpfully they’re going to put all of the so-called level 3 guidance on the website. So as it stands at exit day, not going forward but as at exit day, it will go on the FCA website and firms can refer to it.

Now, one thing I would mention about that is that as we know at the moment the European supervisory authorities issue guidelines about money laundering, and under the money laundering regulations it’s a statutory obligation for firms to take account of those guidelines when they’re putting together their anti-money laundering controls. And it’s been confirmed by way of a statutory instrument that after Brexit that won’t be the case. Firms will no longer be legally obliged to take account of those guidelines. But having said that, there are two very good reasons why they should continue to do so. First there’s a practical one, it’s really very good guidance. It contains lots of useful red flags that will cause staff to prick up their ears when there’s a money laundering issue, so practically keep it close to hand. Also, from a regulatory and an enforcement perspective, the FCA have confirmed that even after Brexit when they’re deciding whether to penalise a firm for having breached the money laundering regulations, they will consider whether that firm took into account the guidelines issued by the European supervisory authorities. So that is the case even after Brexit. So for me that’s two very good reasons to keep complying with those regulations.

PRESENTER: Well, earlier, you touched on SMCR, so what do we need to know moving forwards?

HANNAH DOHERTY: Well as you know under the conduct rules all financial services staff will be required to observe proper standards of market conduct. And that was highlighted recently in a speech by Julia Hoggett. Now, she’s the Director of Market Oversight at the FCA. And she asked what steps are firms taking to ensure that operators in the market understand what proper standards of market conduct actually are. And she said sometimes it’s simple: you know that if you’ve got inside information you shouldn’t trade on it, and you shouldn’t give it to somebody else and encourage them to trade on it either. But unfortunately life isn’t always that simple and sometimes there are shades of grey. And she noted that in those circumstances it’s often better placed for an industry body to advise its members on how to avoid those shades of grey than it is for a regulator to step in and try and define it.

That’s why the FCA have introduced a mechanism for recognising industry codes. They’ve just finished consulting on whether to recognise the FX global code and the money market code. And what she said was that you have to be certain that what you’ve done is embed the principles of the recognised code in your business model, because the FCA won’t take the fact that you’re a signatory to the code as being enough. You will have to demonstrate that to them. And importantly she also said that if there is no alternative to the recognised code available in the market, any firm or senior manager who chooses not to adhere to that recognised code, they’ll have to think carefully about how they are going to demonstrate their compliance with their obligation to observe proper standards of market conduct. So, even though recognised codes aren’t mandatory as such, you will make life a lot harder for yourself if you don’t comply with it.

PRESENTER: So, in terms of penalties, what have we been seeing?

HANNAH DOHERTY: Well the FCA have just fined a fund manager for failing to observe proper standards of market conduct and for not acting with due skill care and diligence. Now that action was taken under the approved person’s regime, but the same rules apply under the new conduct rules. And it was a fund manager who was fined over £32,000 for his conduct in relation to an IPO and a share placing. And on two separate occasions he had submitted orders as part of a book build for a share offering where the shares were going to be listed on public markets.

Before the books closed he rang up fund managers at competing firms and tried to convince them to cap their prices at the same as his. And the FCA said that he risked undermining the integrity of the markets and the book build because he was trying to harness the firms’ collective power. So he had failed to observe the proper standards of market conduct in two ways. Firstly, before the book closed he rang them up and tried to convince them to put their prices at the same level of his. But then even after the book closed on one occasion he rung fund managers at competing firms and tried to encourage them to use what he called this low ball strategy going forward for future share offerings. So the FCA said that he had failed to observe proper standards of market conduct.

Now he actually objected to that. He said that what he did was no different to information sharing that usually goes on to counterbalance the effect of a broker talking up the book as they call it. But the FCA didn’t agree. They drew a distinction between discussing valuations and disclosing some bid information, on the one hand, and undermining the proper price formation process on the other. What he did very much fell into the second category so that was contrary to proper standards. Now he was also found to have tried to, from his point of view he felt that what he was doing was trying to achieve a price that was reasonable. He genuinely believed that the price he was encouraging other fund managers to submit was the right price. But the FCA were clea,r just because he genuinely believed that it didn’t make his conduct proper. He was also found to have acted without due skill care and diligence, in that he hadn’t given proper consideration to the risks of ringing up the other fund managers and trying to drive the price down. Again he objected. He said that he had exercised due diligence because he had done some research. He’d checked in the FCA handbook and his own firm’s internal policies, he said he didn’t find any warning signs against what he was doing. But in actual fact his internal policies did say that there was a risk of communicating with investors at other firms, and they emphasised that if an employee was in any doubt as to the course of action that they should take, then they should consult their line manager or the compliance officer before doing anything. And the FCA actually found that the fact that he had done some research indicated that he himself knew there was a problem with what he was proposing to do. So the key takeaways for financial services staff are take time to read your firm’s internal policies properly and if in doubt shout.

PRESENTER: So what does your outlook for 2019 look like then?

HANNAH DOHERTY: Well, there’s a lot to take on. But having said that, as I’ve mentioned speeches that the personnel from the FCA give often signpost the FCA’s greatest area of concern. We’ve looked at Julia Hoggett’s speech on SMCR. And we’re going to look at a speech by Andrew Bailey on research and unbundling. It’s a good place to start if you want to get the direction of travel for the FCA. And of course the other big thing this year is the SMCR. All firms are obliged to train their staff on the new conduct rules. For some firms the conduct rules won’t come in until later this year, but don’t wait. The sooner you train your staff on the conduct rules, the sooner you have staff who have the mindset that the FCA is after.

PRESENTER: There’s certainly to take in, so how can people be best prepared?

HANNAH DOHERTY: Well there is a lot to take in. If only life was as easy as Brexit. Unfortunately we’ve got a lot on our plates. But having said that there’s a lot of training solutions and a lot of tech solutions that are just on hand to make 2019 a manageable challenge.

PRESENTER: So what do you think are your final thoughts that you’d like the viewer to take away from this session?

HANNAH DOHERTY: Well one thing that’s in the post is some more feedback from the FCA on how the new unbundling rules are bedding in. Andrew Bailey gave a speech on MiFID, recently, and he highlighted that for him of all the changes prompted by MiFID II, one of the most notable has been the shift by a vast majority of traditional asset managers towards paying for research costs themselves, rather than taking the money from their clients’ funds. Now he said that last year alone that saved investors £180m. So going forward for the next five years it could save them close on a billion. But although that’s great news for investors, he cautioned that there are issues with asset managers paying for it themselves. There has been some commentary in the press about peppercorn pricing as it’s called. What he said was that asset managers have to be aware that by accepting certain levels of prices, they may be creating conflicts of interest. In other words, is the research that you’re getting so cheap as to call into question whether it’s genuinely divorced from your trading relationship with the broker? So as I say he highlighted that as an issue, but he promised that there will be more formal feedback on how the new unbundling rules are bedding in in the second quarter.

PRESENTER: Hannah, thank you.


PRESENTER: In order to consider the viewing of this video as structured learning, you must complete the reflective statement to demonstrate what you’ve learned and its relevance to you. By the end of this session you’ll be able to understand and describe with Brexit looming will it impact regulation in the UK; advantages of technology for advisers; and what to expect and how to be best prepared for new regulation in 2019. Please complete the reflective statement to validate your CPD.