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Today New City Initiative is comprised of 43 leading independent asset management firms from the UK and the Continent, managing approximately £500 billion and employing several thousand people.

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After the Storm. What Managers Need to be Thinking About

Published by Charles Gubert

Although the stringent lockdown measures are gradually being loosened, the reality is that most NCI members will continue to work from home until at least September, if not later. While the majority of UK investment firms have weathered the market dislocation, new challenges will emerge over the coming weeks and months, especially as various regulatory compliance deadlines start to creep up.

Regulatory time-frames look tight again

At the moment at which regulators realised how disruptive Covid-19 would be, the implementation of various rules and requirements was put on hold or delayed. In March 2020 (which now seems like a lifetime away), the European Securities and Markets Authority (ESMA) announced that the Securities Financing Transaction Regulation (SFTR) would be pushed back until July 2020 from April after lobbying from ICMA (International Capital Markets Association) and ISLA (International Securities Lending Association). The rules compel credit institutions and investment firms to disclose information about their securities financing trades such as repos to authorised trade repositories. While the initial delay was a positive development given the circumstances, the latest deadline is fast approaching, and it is something which fund managers will need to give serious thought to.

More recently, the EU has rejected pleas from 11 industry bodies including AFME (Association for Financial Markets in Europe), ISLA and the AGC (Association of Global Custodians) to delay the roll out of the Shareholder Rights Directive II (SRD II) which will come into force from September 2020. SRD II applies to any fund manager regulated under MiFID II (Markets in Financial Instruments Directive II), UCITS or AIFMD (Alternative Investment Fund Managers Directive). Under this new regime, asset managers must develop a policy outlining how they engage and exercise their voting rights with European listed companies in their portfolios. This information needs to be made available on their corporate websites. Managers must also provide investors with information about how their engagement policies have actually been implemented on an annual basis. This will involve investment firms having to release details about how they voted at AGMs (annual general meetings).  

What to expect next

Just as the Financial Conduct Authority (FCA) launched an investigation into daily dealing property funds after they gated client assets following Brexit, it is highly likely that regulators will start scrutinising how investment firms’ liquidity risk management processes worked during Covid-19. The FCA was already preoccupied with the issue of liquidity risk management following the Neil Woodford gating incident. Consequently, it is expected the FCA will focus on the matter once again as the Covid-19 crisis starts to recede. While business continuity plans (BCPs) have generally held up at fund managers, it is an area the regulators will want to scrutinise. It is also probable regulators will want information from asset managers about whether their outsourced providers BCPs proved resilient. This should be something which NCI members ought to be thinking about.