In a speech at the ICI Global Trading and Market Structure Conference, Martin Wheatley, Chief Executive, FCA, set out the key issues for the FCA in 2014 which include achieving (i) cultural transition and accountability (so that firms do the right thing, whether the regulator is watching or not) and (ii) technical transition (tightening up legal requirements and rules).

The best example of the change in the FCA regulatory approach, and a benchmark of what to expect in 2014, has been the recent FCA announcements around asset management

Martin Wheatley, Chief Executive, FCA, has given a speech at the FCA asset management Conference entitled “Shaping the future in asset management”. In his speech Mr Wheatley identifies the challenges to the asset management industry and indicates ways to tackle these. Some of the questions asked are whether:

1. The UK asset management industry is internationally competitive;
2. Charges and fees are transparent; and
3. Inherent conflicts exist within the system.

Challenges.

Mr. Wheatley identifies the following challenges facing the asset management sector:

1. Services are being bundled together with eligible and non-eligible services being mixed;
2. When this information is provided to clients, it lacks transparency as to how their commissions have been spent; and
3. The definition of “research” is being stretched by using client commissions to cover non-eligible costs and services. In summary, Mr Wheatley explains that the lack of transparency in the use of dealing commissions distorts competition and supports unsustainable business models.

Addressing the challenges. Mr Wheatley highlights that although there is a need to engage at European level, notably through the Markets in Financial Instruments Directive, the challenges to the asset management industry needs to be dealt with at the UK level. The initiatives to address such challenges will be:

1. A thematic review following up on conflicts of interest findings from 2012, looking at both buy and sell-side practices as part of the FCA’s examination of bundled brokerage arrangements; and
2. The launch of a consultation in November 2013 concentrating on providing clarity with regard to the definition of “research” and what the FCA considers to be eligible and non-eligible when purchasing goods and services from clients’ dealing commissions.

As part of the conference, Clive Adamson, Director of Supervision, FCA, also made a speech entitled “Fair, transparent and competitive: the FCA’s vision for the asset management sector” which reiterates the FCA’s supervisory model with regard to asset management. copies of the speech by Mr Wheatley http://www.fca.org.uk/news/shaping-the-future-in-asset-management

In 2014, the FCA will adopt:

1. A more probing analysis of culture and ethics;
2. A more assertive focus on wider markets as opposed to targeting individual firms; and
3. A greater inclination to step in early.

In respect of the proposed revisions to the Markets in Financial Instruments Directive, the FCA is setting up its own implementation project, through which the FCA will engage with firms in order to help them to comply with the new obligations and respond to queries.

In respect of over-the-counter (OTC) derivatives, Mr Wheatley recognised that while there remains significant points of detail to work through, there has been real progress by the US Commodity Futures Trading Commission in introducing cross-border derivatives rules. Priorities moving into 2014 include:

• working through details relating to trading venues (in particular trading venues in the EU and US) used by firms in both territories as major conduits for transatlantic derivatives trading;
• the recognition of equivalence between different international regimes; and
• the full implementation of the European Markets Infrastructure Regulation (EMIR) requirements.

The European Securities and Markets Authority (ESMA) has authorised the first trade repositories under EMIR and, as of 12 February 2014, all derivatives trades (both exchange-traded and OTC) covered by EMIR will have to be reported to one of ESMA’s recognised trade repositories. The FCA will be checking firms’ preparations for this start date in the coming weeks.

A copy of the speech is available. http://www.fca.org.uk/news/looking-ahead-to-2014