Wealth Management: handling an increasingly challenging and complex regulatory landscape

by | Feb 13, 2023

 

BNY Mellon Pershing’s Linda Gibson is Director, Head of Regulatory Change EMEA and together with Mike Rothwell, Director and Country Manager, Channel Islands Pershing Ltd, Linda and Mike explore the regulatory challenges and opportunities facing wealth managers in 2023 – and how to prepare

 Post-Brexit, the EU and the UK are no longer aligned on policy and rulemaking in respect of financial services, and this is leading to divergence in the rules that wealth managers must follow. While the UK government is taking advantage of the “once in a generation” opportunity to review regulation in areas that were previously subject to EU law, the European Union is moving ahead with its own plans. Such divergence is already evident in the implementation of operational resilience, CSDR, the new prudential rules and now the Consumer Duty.

With both jurisdictions following their own regulatory change initiatives, the differences between the EU and UK frameworks are expected to create an additional layer of complexity for wealth managers active in both markets.

A substantial strain for wealth managers operating across different jurisdictions is already being felt in the middle and back office, with regulatory reporting requirements becoming increasingly burdensome as obligations differ. This trend shows no sign of slowing, so how can wealth managers prepare for an increasingly fragmented regulatory agenda?

What’s to come and how to prepare

Understanding the motivations behind the UK and EU’s separate regulatory paths and tracking the myriad of updates across the websites and speeches of regulators will be critical. Revisions to MiFID II, made by ESMA via the Quick Fix Directive and the FCA in its published business plan, were a signal of what was to come: a piecemeal approach to regulatory change underpinned by political ambitions.

The UK’s newly introduced Consumer Duty has now cemented this approach, giving firms a series of deadlines but with a relatively narrow timeline for implementation. Gone are the days when wealth managers had extensive time to prepare for a ‘big bang’ change. The newly introduced rules are also a clear demonstration of the UK’s shift towards outcomes-based regulation rather than prescriptive rules, evident through the introduction of value for money considerations and the need for firms to evidence good outcomes for consumers.

The regulatory change agenda in relation to ESG, MiFID, AIFMD, PRIIPS, digital finance and operational resilience across both the EU and UK will continue to gather pace in 2023. The regulatory horizon has never looked so challenging. And, on top of all of this, uncertainty  remains in relation to the ultimate shape of UK regulatory reforms, including the Edinburgh Reforms comprising 30 far reaching measures as announced in December 2022, which will overhaul regulatory policy and rules in the post-Brexit UK.

Now is not the time for inertia as a wealth manager. Taking steps to prepare for future regulatory changes is critical, with the process in itself requiring a degree of culture change to ensure that all and any adaptations to a business model is centred on the idea of preparedness and the ability to manage future regulatory risk.

Whilst we do not have sufficient detail and certainty at present to kick-start implementation programmes for certain key proposals such as the UK Government’s announcement to repeal PRIIPs regulation and consult on a new direction for retail disclosure or the review of SMCR, firms should take the time to understand how these rule changes will set the scene for UK regulation change for years to come. Wealth managers should take time to review the material provided by regulators to do this, and those operating across both the UK and EU must also consider the challenges and the impact of divergence on their operating models.

To aid in this process, we’ve developed a set of steps that wealth managers can take now to ensure they are appropriately prepared for regulatory change in 2023 and beyond:

  1. Develop an effective communications strategy: Building a clear line of communication will be essential if a firm is to adequately support internal teams and external advisers with regulatory change requirements. C-suite buy-in and coordination from the top-down will be the first, critical step in this process to ensure the right information is reaching the right individuals at the right time. Only then can a wealth manager garner support from team leads and prepare the essential man-power needed to enact regulatory change.

 Ensure systems and processes are up to the task: The FCA has set out its new, data-led approach to regulation which will require wealth managers to be smart about what data they collect and how they process it to evidence that they can meet the management information (MI) requirements. To do so, a clear process must be in place to ensure each business line knows what information needs to be shared with who and by when.

Meanwhile, the digital systems that hold and process the data itself must be tried and tested to ensure they are robust and reliable.  Firms should be asking themselves, do we have sufficient technology capabilities to keep pace with regulatory developments?  If not, would we benefit to outsource certain responsibilities to enable a greater focus on servicing our clients.

  1. Allocate resources and identify the gaps in capabilities: Firms need the right culture, capability, and capacity to continue to adapt and comply with the evolving EU and UK regulatory regimes. Building on the aforementioned point, it is critical that a wealth manager’s approach to and readiness for regulatory change is consistent firm-wide. To ensure this is the case, adequate resources must be allocated to assess the impact of any potential regulatory change on business processes, operational risk, internal governance and documentation procedures to ensure compliance obligations can be met.

However, before the necessary skills and toolsets can be deployed to undertake this assessment, a firm must question whether it has the appropriate mix of front, middle and back office resources with the required skill sets, particularly across fast-growing areas such as operational resilience  to manage the end-to-end process of compliance, or whether outsourced solutions should be considered.

About Linda Gibson

Director, Head of Regulatory Change EMEA at  BNY Mellon | Pershing

Linda Gibson is a Director and Head of Regulatory Change at BNY Mellon | Pershing EMEA. Linda has overall responsibility for horizon scanning on emerging regulatory change and supporting Pershing EMEA’s clients, providing direction and leadership on regulatory change as it impacts the industry.  Linda joined Pershing EMEA in 2009 as head of compliance advisory and moved to her current role in 2014.

Linda has more than 20 years’ experience in financial services covering trading, custody, clearing and settlement. Prior to joining Pershing EMEA, Linda’s experience included roles as head of compliance, compliance consultant and as a manager of supervision and authorisation teams at the FCA.

 

About Michael Rothwell

Director and Country Manager—Channel Islands, Pershing Limited  

 

Michael Rothwell is Director and Country Manager, Channel Islands BNY Mellon | Pershing. He is a member of the Executive Committee for Pershing Limited. Michael is responsible for the overall management of Pershing’s Jersey Office, meeting regulatory and control requirements and the strategic development of the business in the Channel Islands & offshore UK region.

Prior to joining Pershing in 2011, Michael was Chief Executive of Bank of America Fund Services in Jersey, and Managing Director of Invesco International Limited and its affiliates Perpetual Fund Management (Jersey) Limited and Atlantic Wealth Management International Limited, where he also established and sat on the boards of various mutual fund vehicles. Michael trained as a Chartered Accountant with PwC in London.

Michael studied Modern History at Oxford University, and holds an MPhil in Social Anthropology from Cambridge University and is reading for an LLB with the Open University. He is a Chartered Accountant, an Associate of the Chartered Governance Institute and Member of the Chartered Securities Institute and Institute of Directors.

 

 

 

Related articles

Three stocks for three fund managers

Three stocks for three fund managers

Alliance Trust highlights three stocks from its globally diversified portfolio including Japan, the US, and across the construction, technology, & energy sectors. First up is United Rentals, the largest equipment rental and management company in the world, with...

CFA Institute launches new Private Equity Certificate

CFA Institute launches new Private Equity Certificate

CFA Institute has today launched a new Private Equity Certificate. Underpinned by globally recognised CFA Program content, the new Private Equity Certificate is tailored to private equity professionals with one to three years of experience. The certificate seeks to...

Trending stories

Join our mailing list

Subscribe to our mailing list to receive regular updates!

x