Investment management compliance uk

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What proactive and tangible steps can managfment take to help ensure their firms are set up to succeed, even in turbulent times? Even beforewhen a case before the Supreme Court referenced speculative securities schemes that had no more value than a patch of blue sky, 1 regulatory agencies have attempted to protect investors from fraud, and provided frameworks for fair and orderly market operations. In the years since, there has been a slow but steady rise in regulatory activity uj all industries—leading to the 24, pages of final rules published in the Federal Register in A total of 1, institutions lobbied the Dodd-Frank bill during the legislative process. Agency activity around oversight of the investment industry has increased correspondingly see figure 1.

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Investment management or financial management is the professional asset management of various securities shares, bonds, and other securities and other assets e. Investors may be institutions insurance companies, pension funds, corporations, charities, educational establishments etc. The term ‘asset management’ is often used to refer to the investment management of investment funds , while the more generic term ‘fund management’ may refer to all forms of institutional investment as well as investment management for private investors. Investment managers who specialize in advisory or discretionary management on behalf of normally wealthy private investors may often refer to their services as money management or portfolio management often within the context of » private banking «. The term fund manager, or investment adviser in the United States, refers to both a firm that provides investment management services and an individual who directs fund management decisions. The global investment management industry is highly concentrated in nature, in a universe of about 70, funds roughly

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What proactive and tangible steps can they take to help ensure their firms are complince up to succeed, even in turbulent times? Even beforewhen a case before the Supreme Msnagement referenced speculative securities schemes that had no more value than a patch of blue sky, 1 regulatory agencies have attempted to protect investors from fraud, and provided frameworks for fair and orderly market operations.

In the years since, there has been a slow but steady rise in regulatory activity across all industries—leading to the 24, pages of final rules published in the Federal Register in A total of 1, institutions lobbied the Dodd-Frank bill during the legislative process.

Agency activity around oversight of the investment industry has increased correspondingly see figure 1. Inthe US Securities and Exchange Commission SEC reported enforcement actions stemming in part from examinations of 17 percent of investment companies, a record high inevstment both counts. Financial firms may find themselves perpetually at the top of the regulatory risk spectrum. Investment management firms are subject to the jurisdiction of multiple regulatory authorities, a factor that contributed to these results.

The introduction of a bill marks the beginning of invetsment legislative process which may ckmpliance to investemnt changes. After a bill is signed into law, agencies decide how it will be enacted, and it becomes regulation. These regulatory challenges inveshment often multipronged for uuk organizations across all industries. For IM firms, regulatory readiness is increasingly difficult to achieve.

And even in uncertain times, firms will still invdstment to adopt leading practices to respond effectively to a constantly shifting regulatory environment see figure 2.

This paper explores innvestment readiness through a compliancs framework, from sensing and influencing to prioritizing and planning and then to implementing.

Some of these areas are unique to regulatory readiness, and others, such compliancr project implementation, leverage broader-use organizational capabilities. But even these widely used practices have meaningful nuances to effectively manage regulatory change. The focus here is on the peculiarities of regulatory change throughout the life-cycle framework.

The first way an IM firm can help fulfill this goal is to create an active sensing and influencing agenda that permeates the organization. External-facing activities with lawmakers and regulators could be handled by a government relations strategy. This strategy innvestment help to educate lawmakers and regulators on issues important to the business.

Such interactions can also provide greater clarity to the sensing function through the collection of additional information, including intent, political context, and the probability for enactment. Sensing : Continually monitoring the external regulatory environment to identify potential risks and opportunities to the organization. Influencing : The process of educating regulators and key individuals in policy making on industry, sector, or organization perspectives in order to help shape legislation and regulation.

So what new approaches should an investment investment management compliance uk take to keep ahead of legislative and regulatory developments?

When IM firms can review and discuss legislation before it is finalized, they have the compoiance to shape it and its parameters before it becomes maangement law. Regulators can also change their examination priorities, sometimes driven by new business practices and products.

Developing a proactive strategy may also yield competitive advantage. One way to learn where competitors are focused is by monitoring lobbying disclosures through its sensing operations.

By doing so an organization can get a glimpse into what competitors and other firms are doing. For example, if a competitor is spending time lobbying a certain law or regulation, this may give clues to the strategic importance of the issue at hand.

While this process would require looking through a lot of lobbying data, regulatory data providers can help ease this burden. Investment managers may reap substantial benefits from having an effective government relations strategy.

These benefits may include managing political risk, identifying the political opportunity, promoting and protecting business interests, and providing political intelligence sensing. The majority of larger investment managers often maintain a dedicated in-house team, yet small- to mid-sized inveetment may leverage external resources for support, as outlined in figure 4. Having a virtual support team may provide a manager with a greater capability to sense the changing regulatory and legislative landscape.

Fortunately, over the past few years a number of regulatory data vendors have sprung up to assist. These vendors—as profiled in Step 3 below—may supplement in-house government relations teams, depending on organizational objectives. Larger firms often supplement their in-house activities with data vendors, trade associations, and lobbyists on retainer while smaller organizations tend to outsource more of xompliance sensing and influencing approach.

This outsourcing approach may be advantageous from an efficiency and brand risk perspective among othersbut relying exclusively on associations can have its limitations. For example, while industry trade associations may cover market structure and investment adviser issues for hedge fund managers, they may not match investemnt firm priorities in areas such as labor policies, where fund managers may have differing interests.

To keep ahead of proposed legislation, rule enactments, enforcements, and litigation across various jurisdictions, global organizations offering investment products across multiple structures and distribution approaches may need the broadest sensing and influencing scope. Additionally, firms with diverse global product offerings should weigh the disparate impacts that a single regulatory change may have inevstment different parts of their operations. Here, it may be beneficial for at least investmenh of the government relations members to also belong to a Regulatory Assessment and Response Execution RARE virtual team.

This can help ensure that when the externally focused sensing and influencing group identifies a piece of legislation that may impact the organization, touchpoints are already lined up for handing off the issue to internal constituents in the relevant departments that may be impacted. This team is already focused on identifying forward-looking, external investmenr, which are important components of strategic development.

Data and analytics are enhancing the government relations function and creating new information sets that can be used by both dedicated teams and the broader organization. The inception of the eRulemaking program in seemed to kick off the advanced analytical era invsetment allowing managwment access to pending legislation. Since then, analyst teams have created increasingly robust systems to grab data, analyze it, compare findings to other data sets, and deliver reports.

While larger investment managers may conduct cmpliance own legislative analysis, they still may wish to have their work supplemented through outsourcing. Mid-sized and smaller shops, in particular, may benefit from the cost-efficiency of outsourcing data and analytics. Data and analytics used for government relations efforts may also be leveraged com;liance.

In light of the growth of these costs, investment managers may want to consider sharing the cost of regulatory data across the departments that may benefit. History shows that the first American lobbyist was likely William Hull, a Revolutionary war hero who traveled to Philadelphia in to invrstment back pay for soldiers.

Unfortunately, he was not successful. A government relations strategy also influences for effect beyond direct engagement with policy makers. For example, organizations can conduct grassroots activities, develop media campaigns to shape public perceptions, and interact with third-party groups think tanks to strengthen their education efforts.

One of the inveetment points to allocating resources to the sensing and influencing functions is the intangibility of the process, and the resulting inability to attribute bottom-line results from government relations activities. Clearly it is difficult to cite influence to outcomes in this area, unless, for example, a regulatory agency sources a comment by a particular manager in a final rule. Yet there may still be ways a manager can justify budgetary spending for a government relations function:.

In summary, the five steps outlined above describe the benefits of an organization creating a coordinated effort around managekent and influencing the regulatory environment. Once these external efforts are in place, a firm can move on to the uj phase of being regulatory-ready through internal planning and prioritization. Once an organization gathers relevant information from the risk sensing stage, dompliance next step is often to follow a structured approach to filter compluance regulatory signals amidst the noise.

A structured and collaborative risk planning and prioritization approach provides dual benefits for investment management firms battling regulatory changes on multiple fronts product, pricing, manaement, and geographic presence. These include:. However, as investment managers seek to expand their product portfolio and geographic presence, the number of regulatory and compliance risks faced rises exponentially.

In a cost- and resource-constrained environment, companies should plan and prioritize their regulatory response to ensure the optimal risk-return tradeoff. In addition to having a core team in place to manage the planning process, the five-step approach described below would help IM firms identify the key regulatory changes that need compliajce be focused on and develop adequate compliance solutions.

A Regulatory Assessment and Response Execution RARE team is a cross-functional virtual team in an IM firm that can manage the compliancce regulatory change and planning process, serving as the key platform that coordinates and manages regulatory change and compliance activities figure 5.

Its objective is to generate synergies to form a better-coordinated companywide response invsstment regulatory changes. To be most effective, the RARE team should: For RARE team members to achieve their expected capabilities, knowledge and communication are two critical requirements. The functional areas for the RARE team are typically finance, operations, regulatory, reporting, extended enterprise, strategic, and technology FORREST ; team members can be expected to have expertise in more than one of these areas.

To achieve an enterprise-wide, FORREST view of evolving regulatory risk, team members should also be comfortable coordinating and communicating across levels with different functional areas including risk and compliance, business leaders, strategy, and finance. This capability is important because risk prioritization is often most effective when conducted through a framework that follows a comprehensive path across the organization.

To build a truly multidisciplinary, collaborative, and flexible RARE team, IM firms should spend time developing the right team structure and ensuring that members have the right skill sets for this work. Most of the skills typically required to be a part of the RARE team can often be found within the firm, with resources from different areas being pooled together to bring in their functional perspectives to form a virtual team.

After the RARE team is formed, the team would then need to define the responsibilities and reporting lines to ensure a coordinated execution. The following five-step action plan that has the RARE team collaborating with other committees could allow for a more informed approach for regulatory risk planning and prioritization.

Firms can maintain an operating model, a regularly updated information repository covering the entire financial, geographic, and regulatory scope of the current business. The operating model would include details such as:. The operating model serves as the bedrock for managing the regulatory response; it can be developed ibvestment a collaborative effort between senior business leaders, the strategy committee, and the finance team. The operating model should be updated on a regular basis or during specific events such as:.

Once updated and ready, the model can be a vital tool for the RARE team to use in managing the next stage of the regulatory risk planning and prioritization process: business and product impact analysis.

The objective of this phase is to specifically highlight areas such as product portfolio, distribution channels, client segments, pricing policies, and geographic presence that would be affected by investmfnt changes or impacted by proposed compliance rules, and to arrive at a risk-based resource allocation plan.

They often use the input from the sensing and influence stage, the operating model, and information from the project management office PMO about an initial list of priorities.

One tool to typically help with initial prioritization of regulatory events is the risk assessment heat map see figure 7. While this initial managrment often lacks the complexity for final investmejt making, it jnvestment be useful for prioritizing the work for a inveetment risk assessment.

This forms possibly the most critical step of the entire risk planning process, as the results guide the risk response action investmentt. The first step in the risk assessment exercise is often to develop janagement assessment criteria and determine scale by answering the following questions:. Assessment criteria should be tailored to suit the requirements of each firm. Once the criteria and scale have been finalized, the risk and compliance team can compliahce a detailed risk assessment for any proposed regulation or new compliance requirement.

Leading risk assessment practices have evolved from a largely qualitative assessment based on descriptive scales to a more detailed quantitative assessment utilizing data gathered and tracked through the compliance function. Internal and external audit points, regulatory findings, and fompliance legal actions are some of the traditionally qualitative sources that are in transition to structured data that support quantitative analysis.

Quantitative risk assessment models can estimate the impact on gross profit margins, cash flows, or earnings over a given time horizon at a given confidence interval, and can also identify compliance-related issues that may have a long-term impact on brand. Firms may find value from external resources, which can help eliminate any gaps overlooked by the internal team and offer an independent review for the nivestment assessment scoring process. This structured assessment approach provides a holistic perspective for assessing regulatory risks and their interactions.

As a part of this, a large number of investment management firms have adopted risk appetite statements approved by the board to guide senior decision makers in formulating business plans and regulatory responses. The RARE team can coordinate with business leaders to highlight all the components of the business, such as the product portfolio, client segments, distribution channels, and geographies most heavily impacted by the regulatory changes.

Business leaders can then propose multiple ways in which the operating model can be adjusted to remain compliant under the proposed regulations.

Building regulatory-ready organizations

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