With legislation such as MiFID II gearing up to take effect, and the uncertainty surrounding Dodd-Frank in the US, the financial regulatory landscape for asset management companies in the UK is set to become even more complex in 2018.
These new and evolving regulations will impact every aspect of the financial services industry – everything from trading to data recording to transparency around small operational details.
This changing regulatory landscape in the UK has brought up major compliance questions (and points of confusion) for many financial institutions.
This is certainly true for firms that will be subject to a new set of regulatory requirements for the first time, including asset management companies, which will need to re-evaluate how they treat external research from investment banks.
Currently, fund management groups get their research from investment banks free of cost, in exchange for placing trades with them.
However, under MiFID II, asset managers must separate these charges from trading costs and provide full disclosure to investors regarding how much they pay external analysts for research.
The truth is, regardless of experience, new and fast-changing legislation means that most financial institutions are unknowingly making themselves vulnerable to compliance inquiries and complications, particularly when it comes to their most valuable yet highest risk asset: their employees.
Properly archiving employee communications is absolutely essential to ensure that asset management groups are able to protect themselves in the face of an investigation, inquiry or lawsuit.
However, the method in which this is done, and to what extent, is something that firms need to re-examine as regulations evolve.
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For example, under MiFID II, it is required that financial services firms record all phone calls, voicemail and instant messages (IMs) of bankers and asset managers that ultimately lead to a financial transaction.
This is not entirely new as most firms have been archiving electronic communications and – separately – fixed landline voice communications for years.
However, financial services firms will now be required to do the same for client communications occurring on personal smartphones.
According to what they say on sites like ArmyOfBitcoin.com, this presents a complex technical hurdle for the thousands of organisations that have chosen not to do this in the past as it wasn’t a mandated requirement.
Though MiFID II is an EU regulatory framework, its requirements stretch to any and all financial institutions that plan to continue doing business in the UK.
Even though MiFID II is an EU regulation, it is still true that UK firms very much have to comply with it regardless of the outcome of Brexit.
As importantly, other regulatory bodies including the US Securities & Exchange Commission are examining its requirements and attempting to guide firms on how to reconcile it with existing non-EU regulatory frameworks.
Whether its major provisions are ultimately adopted on a global scale or not, financial institutions that address this now will avoid any costly non-compliance lawsuits in the future, and will be at a tremendous advantage over competitors who will inevitably scramble to play catch-up.
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