FCA announces consultation​

By Jake Rickman​

What do you need to know this week?
The UK’s Financial Conduct Authority (FCA), which is the conduct regulator for certain financial service firms including asset managers, released a Discussion Paper (DP) on Monday announcing a review of the regulations governing the asset management industry in the post-Brexit regime.

The DP partly serves as an invitation for comments from asset managers like retail index funds, private equity, and hedge funds to consider what regulatory changes, if any, should be introduced to ensure the market:
  • better meets the needs of retail and professional investors;
  • enables better use of technology, innovation, and data;
  • is consistent with international standards; and
  • effectively and proportionately simplifies and standardises regulatory requirements.
The DP is technical and largely intended for professionals working in asset management. But some of the areas the FCA believes may be amenable to change relate to:
  • the relationship between fund managers and portfolio managers;
  • enhancing and strengthening liquidity management; and
  • formalising due diligence procedures, particularly for illiquid investments.
Why is this important for your interviews?

The stakes for any proposed regulatory reforms of financial markets are quite high. It impacts everything from individual savers to the investment and capital-raising decisions of the UK’s largest companies and their financial and legal advisers. Accordingly, this is a development to keep an eye on.

The FCA’s release of the DP follows on from a series of ongoing clashes between the Bank of England — which the FCA sits under — and the successive series of Tory governments dating back to Boris Johnson’s premiership. In essence, many Conservative lawmakers feel that the Bank of England has not done enough to capitalise on Brexit and the UK’s new independence from the EU financial regulatory regime by implementing regulatory overhauls. Implicit in the government’s call for the Bank of England to embrace regulatory liberalisation is that if it fails to do so of its own accord, the government may strip it of its independence.

While the DP serves as a call for comments, the existing proposed reforms are mild at best and if anything may increase regulatory overcheck rather than liberalise it, contrary to what many in the Conservative Party may wish. In particular, the FCA points to the liquidity crisis that struck pension funds in October of last year as evidence of why tighter regulations may be needed. As a result, it is likely we may see further sparks fly between the Bank of England and the government.

Sidley Austin has a renowned financial services advisory practice and would be in a strong position to advise investors and other stakeholders on the impact of any regulatory reform. A Financial Times article covering the FCA’s DP release quoted Mr Leonard Ng, who co-heads Sidley’s Financial Services Regulatory group in London. He said, “the UK should be sensitive to the likely high costs and disruption that would result from a major overhaul of its asset management framework.”

How is this topic relevant to law firms?

Sidley Austin has a renowned financial services advisory practice and would be in a strong position to advise investors and other stakeholders on the impact of any regulatory reform. A Financial Times article covering the FCA’s DP release quoted Mr Leonard Ng, who co-heads Sidley’s Financial Services Regulatory group in London. He said, “the UK should be sensitive to the likely high costs and disruption that would result from a major overhaul of its asset management framework.”