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Articles by Martin Lovick
FCA confirms new rules for payment optionality for investment research
The FCA has published its final rules on introducing a third option for investment managers to purchase research services through joint research and execution payments. These largely confirm the so-called “guardrails” for this new approach announced in CP24/7, itself a product of the Investment Research Review set up by the Treasury in March 2023. The new rules came into effect from 1 August .
An introduction to the FCA's Early and High Growth Oversight Framework
Early and High Growth Oversight (“Early Oversight”) is a relatively new FCA initiative which has created an enhanced supervisory framework for newly authorised firms. As they get used to their regulatory status, the FCA wants these firms to have a better understanding of their standards and expectations so that processes can be embedded at an early stage of the growth cycle. Early Oversight helps the FCA quickly identify and address potential harms that can develop in newly authorised firms.
Market Watch 79: Common problems with market abuse surveillance and how to address them
The FCA used the latest edition of their regular newsletter on market abuse and transaction reporting, Market Watch 79, published in May, to highlight typical failures of market abuse surveillance arrangements caused by factors such as data and automated alert logic. It also provided new guidance derived from its recent peer review of banks’ testing of client front-running surveillance models.
Financial regulation under Labour: 5 themes to watch
It is a truism that governments are never so powerful as at their inception. Following a campaign that shied away from specific commitments, yet voted in with a record majority, the new Labour administration is now be expected to launch a plethora of policy initiatives in the coming months. What does Labour’s “hundred days” hold, and how will this affect the regulation of financial services in the UK?
Capital Markets Newsletter - June 2024
Welcome to the latest edition of our compliance newsletter aimed at capital markets firms, including wholesale buy and sell-side firms, wealth managers and corporate finance firms. We are now coming to the end of a busy period for regulatory developments in the UK and beyond.
The FCA’s anti-greenwashing rule and supporting guidance: what do firms need to do?
The FCA’s anti-greenwashing rule (the “Rule”) comes into force on 31 May 2024. This is a delayed date reflecting the drafting of, and consultation on, supplementary (non-Handbook) guidance on the Rule which was only confirmed in FG24/3 on 24 April (the “Guidance”). Somewhat confusingly, the Handbook timeline (ESG 4.3.1) states that the Rule came into force on 28 November 2023, but this is not correct.
FCA introduces new Form A for Senior Manager and Controlled Function applications
The FCA has introduced a new Form A for Senior Manager Function (“SMF”) and Controlled Function (“CF”) applications (the latter applicable to appointed representatives) and has updated its webpage highlighting the changes. This is part of a wider review/update of its forms accessible via the Connect system and follows industry feedback. The FCA claims that the new Form A is quicker and easier to complete (although evidence to support this is thin on the ground).
The FCA publishes its proposals on research payment optionality, but with “guardrails”
The FCA has published its long-awaited Consultation Paper CP24/7 on Payment Optionality for Investment Research (”the Consultation”). This contains its proposals to give UK buyside firms, including asset managers, greater flexibility on purchasing investment research. These will allow the “bundling” of payments for third-party research and execution services, subject to certain proposed “guardrails”.
FCA publishes “Dear CEO” letter updating firms on its asset management and alternatives supervisory strategy
At the start of March, the FCA released a Dear CEO letter (the “Letter”) to asset managers and alternative investment managers regarding their supervisory strategy of firms in these sectors. Before we look at its contents, it is worth noting that the FCA has apparently retreated from its previous approach of treating mainstream asset managers and alternative investment managers separately (in February 2023 and August 2022 respectively).
Which regulatory areas does the FCA’s “Dear CEO” letter on supervisory strategy for asset managers and alternatives specifically target?
At the start of March, the FCA released a Dear CEO letter (the “Letter”) to asset managers and alternative investment managers regarding their supervisory strategy of firms in these sectors. Before we look at its contents, it is worth noting that the FCA has apparently retreated from its previous approach of treating mainstream asset managers and alternative investment managers separately (in February 2023 and August 2022 respectively).
Does the FCA consultation on enforcement signal a more aggressive approach?
On 27 February 2024, the FCA published Consultation "CP24/2: Our Enforcement Guide and publicising enforcement investigations – a new approach". This is a significant and unexpected consultation on what the FCA will publish about firms that are under investigation which might, in the past, have been characterised as “shoot first, ask questions later”. Apart from the likely pushback from legal and industry observers, we believe the new approach may have unintended consequences...
Market Watch 77: the threat to market integrity posed by organised crime
Imagined scenario: One of your staff, originally a recreational drug user, has been tempted into supplementing their income by dealing drugs to friends and contacts in finance. At some point, they have attracted the attention of an organised crime gang who pressure (blackmail) them into passing on inside information about upcoming M&A deals which your firm has been wall-crossed on.
HM Treasury reigns back on reform to financial promotions exemptions for HNW and sophisticated investors
On 7 November 2023, the Treasury published a response to its own Consultation on the financial promotion exemptions for high-net worth individuals and sophisticated investors, first launched back in December 2021. By way of reminder, these exemptions are derived from the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (“FPO”). The Response paper summarises the feedback received together with its final position on each policy proposal. Why is reform needed?
FCA warns on insider dealing risks around market soundings
Regulators have long been aware of the risks posed by market soundings to the integrity of markets. By definition, market soundings involve the disclosure of confidential information to a limited circle of market participants. This will likely include details of the imminent placing of securities, together with confidential information about related corporate activity (e.g. restructuring or merger) – each of which may amount to inside information in their own right.
Reminder to attest your AR details - 2023
New attestation requirement for Principal Firms regarding the details of their Appointed Representatives The FCA recently introduced a new requirement for Principal Firms to confirm (and amend, if necessary) the details of their Appointed Representatives (“AR”) and Introducer Appointed Representatives (“IAR”) on an annual basis. The new requirement will apply to all Accounting Reference Dates (“ARD”) from 1 December 2023.
The FCA’s ban of former Barclays CEO and the lesson on the importance of honesty
It was hard to avoid the press coverage of the FCA’s banof former Barclays CEO James Staley, last week. It’s certainly highly significant and the FCA will want to draw attention to it, but it remains to be seen whether this will be seen as a turning point inenforcement actionsagainst senior managers, particularly in respect of misconduct not directly related to regulated activities.
US SEC adopts final version of its Private Fund Adviser Rules
On 23 August 2023, the SEC adopted the Private Fund Advisers Rules (the “Rules”), a series of rules and amendments under the Investment Advisers Act of 1940. This is effectively the final version of the proposed rule changes to enhance investor protection first announced in February 2022.
FCA and PRA consult on a new regulatory framework on Diversity and Inclusion
On Monday, the FCA and PRA published the consultation, CP23/20 on Diversity and Inclusion (“D&I”), to the financial sector. This is a topic that has been much discussed in FCA speeches in recent years and was also the subject of a Discussion Paper, DP21/2, published in July 2021. Some of the policy ideas in that paper have been taken forward into this new consultation, whilst others have not.
The recommendations of the Investment Research Review and the implications for investment managers
Introduction Jeremy Hunt confirmed, in his Mansion House speech on 10th July 2023, the UK government’s acceptance of the recommendations of Rachel Kent’s Investment Research Review (“the Review”). This brings to a swift conclusion this aspect of one of the most important strands of the Chancellor’s Edinburgh Reforms announced last December.
UK Government announces significant relaxation of the UK short selling regime
On 11 July 2023, HM Treasury published the Government Response on its Call for Evidence on the Short Selling Regulation (“SSR”), published last December. Also announced was a Consultation on the Short Selling Regulation for Sovereign Debt and Credit Default Swaps (“CDS”). Taken together, these proposals amount to a significant reform of the UK short selling regime. What are the main changes?
The FCA seeks views on improving the UK regulatory regime for asset managers, but is it enough?
On 20 February 2023, the FCA published a discussion paper, DP23/2: Updating and improving the UK regime for asset management (the Discussion Paper). This is an important contribution to the Future Regulatory Framework Review, established by the UK Government back in 2019, to rethink the UK’s new position outside the EU. The FCA’s stated intention is to initiate a debate about modernising the regulatory regime for funds and asset managers.
FCA warns Asset Managers of key harms in Dear CEO Letter
On 3 February 2023, the FCA published a Letter addressed to the Chief Executives of Asset Management firms, detailing its supervisory priorities in this sector. As the letter explains, Asset Managers are now supervised by the Buy-Side Directorate of the FCA and contact details are helpfully provided. It supersedes its previous strategy Letter sent out in January 2020. Which firms does this apply to?
Lemmings, by CoLD SToRAGE
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