The Investment Management Association's Director of Wholesale, Guy Sears, spoke at the FSA's Asset Management conference on the implementation of regulations, highlighting how key issues for asset managers arise from the way in which banks and other firms themselves implement changes.
“Asset managers are significant users of services provided by others - some of the services are outsourced, they may include valuation services and transfer agencies; other services relate to the significant role the buyside has in the capital markets, and members presently hold some 34 per cent of the stock exchange capitalisation; so they use MTFs, brokers, algorithms, clearing members and more and more will be involved with CCPs (Central Counterparty Clearing Houses); and their clients engage custodians with which managers need to cooperate.
“Never before have firms had to be so concerned with how others are implementing changes in legislation. Terms being offered by clearing members need to be scrutinised to see they preserve the segregation and porting rights which clients wish to have. Bank recovery and resolution plans can easily forget the critical role some of their services play in the operation of the funds industry and we need to ensure that these are addressed alongside more obvious core services to payments and retail deposit taking.
“So the first point is that implementation risk today extends way beyond the firm.
“Secondly as many of you are aware regulations are exceptionally poor at addressing chains of activity. Indeed any form of complexity - and I won't dwell on the fact that asset managers will shortly be facing four different remuneration codes, I hate to think what would have happened if we had actually caused this financial crisis – but my second point is about chains of responsibility, who is responsible for what between manufacturer, wholesaler, distributor and consumer? The regulations will not address this adequately, and the UK has never resolved what it means by consumer responsibility. So we still need to ask what are our true roles and responsibilities quite apart from what the regulations state? In that regard, many commentators appear to consider that by referring to fiduciary duties, they have found a panacea – we think the discussion about fiduciary duties lacks a sound legal underpinning so we shall publish a paper on this, but the question is still good, where do our responsibilities begin and end?
“And finally, implementation at a single firm is rarely enough; we depend upon layers and layers of operational connections, messaging languages and reference data and standards. Financial service regulations rarely if ever descend into the technical language needed to ensure operational efficiency and even to allow regulators to see more easily what is occurring. IMA continues to spend significant resources on issues like the solvency II data requirements and working on standards such as the legal entity identifier, ISO 20022 for RDR and we are expanding our work on reference data. As said, the implementation of an FSA rule is commonly expressed in a series of revisions to complex IT and operational processes extending way beyond the single regulated firm concerned.”
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