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2015 EDITION 1

Running an investment business has changed forever. The well documented catastrophes since 2008 has forced through a mountain of new legislation and regulation. The current and forthcoming changes to the market are designed to protect investors and make participants directly accountable for their actions. Whether we like it or not, regulation will dominate for the foreseeable future and further changes to the way we work are inevitable. Against this backdrop, it is interesting to note the relatively low level of interest regulated firms have shown in using the services of outsourcing organisations. However, change is on the way! As far as the Wealth Management sector is concerned, there is a most definite increase in the appetite for outsourced services. More service providers have come to the market and a handful of wealth management firms offer these on a smaller scale. Collectively, these companies are arranging systems, settlement services and custody facilities deigned to reduce fixed cost overheads and provide more opportunities for their client companies to focus on the needs of their own private investors. But what about the buy side? Goodacre has recently completed research into this sector and produced a White Paper: In Control with Outsourcing. The research established that the larger Hedge and Pension funds continue to justify

in-house dealing, systems and operational infrastructures. Smaller firms however are finding it increasingly difficult in the face of the rising costs of running their businesses due to the various regulato-ry challenges and other factors. A good example where these smaller buy-side firms can reduce their fixed staff costs is through an outsourcing dealing arrangement. These days, experienced dealers in buy side firms would involve a cost of employment (basic salary, bonus, tax etc.) of circa £150k per person. Add to this the cost of dealing systems from firms like Bloomberg plus other necessary overheads and the total cost of a small dealing team is significant. In some small firms, this can be as much as £750k- £1m each year. By outsourcing trading. this cost will disappear from the bottom line. The outsourcer will have expertise across all market sectors, provide best execution, cover all asset classes and use the latest dealing technologies. Contact us now or a free copy of In Control with Outsourcing,

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In Control with Outsourcing?

Simply the Best? Submissions for the 2015 City of London Wealth Management Awards™ are now open. All shortlisted firms will be put through to the public vote. Award winners will be announced at The Guildhall on Tuesday 17th March 2015. MORE P8

This Edition:

FCA Enforcement

Action

The Markets 2015

Investing in Education

FCA Procedures

Client Protection

Dates for Your Diary

And more!

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Historically and generally speaking, maintaining an up to date set of procedures has never really been at the top of the agenda as far as regulated investment businesses are concerned. The vast range of activities carried out within firms often rely on a small number of people who know exactly what to do and when to do it. Now however, this is just not good enough. All firms are expected to have an up to date set of procedures which are readily available and detail who does

what, when and by whom in order to satisfy the regulator. In addition of course, those firms responsible for holding client money are obligated to maintain a resolution pack which contains all the vital information necessary in the event that they should be closed down. This pack must provide all information which will assist an Insolvency Practitioner in locating and returning client money and any other assets to their rightful owners. These days, many firms have very good written procedures, but often there are inconsistencies. References to FCA rules become outdated and in busy times, important information is not updated. Goodacre’s Consultancy division is actively involved in drafting procedures for regulated firms and will also verify the content for accuracy. There is also a service which maintains procedures on behalf of firms on an ongoing basis. Call us for further information.

The leading specialist Management Consultancy supporting the

Securities and Investment Industry

Our consultants engage in a variety of projects and assignments for firms

across the Industry including:

▪ Operational Reviews

▪ Compliance Audits and Support

▪ System Replacement

▪ Salary benchmarking

▪ FCA Applications

▪ Business Development

▪ Acquisition and disposals of FCA Firms

A Matter of Procedures

for the FCA

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FCA fines have hit record levels, with £1.47 billion in penalties being levied last year. This is more than triple the £474 million meted out in 2013, which at the time was a new high (only back in 2011 fines stood at £66 million). A predominant part of these fines have arisen from investigations into the rigging of LIBOR interest rate benchmarks and the foreign exchange markets. In November the FCA announced that five banks have been fined £1.1 billion in total for failing to control business practices and allowing traders to manipulate FOREX. Tracey McDermott, the FCA’s Director of Enforcement and Financial Crime stated, “this is not about having armies of compliance staff ticking boxes. It is about firms understanding, and managing, the risks their conduct might pose to the markets.” She added that if firms fail to apply the lessons learned from past, “they will continue to face significant regulatory and reputational costs.” Penalties continue to be levied for a variety of failings by banks and financial services firms. Given the announcement that the FCA is to review its fine and enforcement policy (following the introduction of the tougher system in 2010 whereby the FCA was given the discretion to increase fines to act as a deterrent), now is an appropriate time to take stock of the lessons learned by your peers. Considering recent penalties can aid in a review of whether your firms’ compliance, regulatory, anti-money laundering and anti-bribery systems are up to scratch. Learning the lessons of the past

These penalties demonstrate a need to ensure there is an almost constant review of how your firm complies with not only FCA rules, but also the myriad of other regulations relating to anti-money laundering and bribery. In summary, it should be ensured that:

▪ full research is carried out on investment products;

▪ all staff members are adequately equipped to advise

on product risks;

▪ clear and not misleading advice is given to

customers;

▪ investment limits are regularly reviewed;

▪ bribery procedures and adequate anti-money

laundering procedures are actively implemented;

▪ complaints are investigated in full;

▪ FCA visits and compliance warnings are immediately

acted upon;

▪ staff undertake adequate regulatory training;

▪ staff incentives do not compromise the need to treat

customers fairly; and

▪ senior management are aware of the potential for

personal accountability. The FCA’s desires to clamp down on the sales driven culture which puts customers’ needs last and to bring senior individuals to account is clear. Compliance issues are moving up the agenda, and not just in the UK. Banks and firms in the US likewise face fines over the LIBOR and FOREX scandals, but also over sanctions-related transac-tions and in September 2014 a US jury found Arab Bank liable for knowingly providing financial services that helped facilitate terrorist attacks carried out by Hamas. This was despite the Bank arguing they had complied with all applicable regulations. As Tracey McDermott said “notices and the root causes that underpin the failings should inform your approach to consideration of the risks you face.” As such, a review of your compliance systems and consideration of your reputational risk, in the light of this ever increasing FCA enforcement action is strongly recommended. For a full copy of this article If you would like any further information about FCA enforcement, or any other Litigation & Dispute Resolution issue please contact Vanessa Wilkinson (pictured), Associate, Edwin Coe LLP +44 (0)20 7691 4000 or vanessa.wilkinson@edwincoe.com

Dodging the regulatory bullet – learning the lessons of the past

A review of FCA enforcement action in 2014

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Investing in Your Staff?

Forthcoming Compliance Training Courses:

Introduction to Compliance & Regulation 10th February 2015 £190

Suitability and Appropriateness 10th February 2015 £89

Introduction to Anti Money Laundering 19th February 2015 £190

Conflicts of Interest 24th February 2015 £89

The FCA Fines 3rd March 2015 £89

The Approved Persons Regime 3rd March 2015 £59

Compliance Officer: Role & Responsibilities 19th March 2015 £59

The Training & Competence Regime 19th March 2015 £59

Senior Management Responsibilities 19th March 2015 £59

We will be running our quarterly Essential Compliance Updates and biannual Financial Crime Updates, featuring leading industry speakers and the FCA ’hot topics’ across 2015.

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Training and the development of your staff is one of the most important investments your organisation will make.

Goodacre UK offers a comprehensive and effective training service designed to meet the

compliance, HR, marketing and operational needs of your firm. Our training courses cover a range of subjects of relevance to the investment industry, from Introductory sessions through to

detailed learning programmes.

▪ Full range of Financial Products Training

▪ Soft Skills Training

▪ Highest Quality Speakers

▪ Lowest Possible Charges

▪ Accredited by the CISI

▪ Full CPD Certification

▪ Courses scheduled weekly

▪ In House Training available

▪ Bespoke Programmes

▪ New Courses added regularly

▪ Courses from just £89+VAT

For a full list of our forthcoming training Click Here

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The economic and monetary back-ground should remain supportive for financial assets in 2015 even if the shopping list of known unknowns is par-ticularly long at present. A year ago politics hardly featured for strategists. We are now faced by the possibility that events in Ukraine could continue to escalate and in the Middle East chaos reigns. Both areas could have a significant impact on energy prices and global economic growth. In the US political stalemate could lead either to inactivity or fiscal brinkmanship and closer to home we are faced by the most unpredictable general election for a generation. Putting these uncertainties to one side, the underlying trends are supportive. With leadership from the US, global economic growth should remain in an uptrend, but not too strong to force a significant rise in interest rates and

inflation remains in hibernation. Well managed companies with strong balance sheets are forecast to grow profits and pay higher dividends. With the risk free rate of return likely to remain low, this background is support-ive for equities and, despite valuation concerns, bonds. Active management will, however, be necessary if good returns are to be made as the gap between winners and losers widens. Buying the index just won’t be good enough. Developed markets are in a stronger position than those that have recently emerged. Listing the key factors to monitor as the year unfolds serves to highlight both the opportunities and threats faced by investors;

A combination of economic

growth and low inflation is more likely if energy prices stay low.

The morale of US consumers

who are well placed to be an engine of growth.

The outcome of the Japanese

monetary and political experiment.

Whether or not the EU will finally

embrace an agenda for growth. It is unlikely to be a dull year. DAVID MILLER (pictured) Executive Director Quilter Cheviot Investment Management david.miller@quiltercheviot.com

All expressions of opinion are subject to change without notice. This material has been prepared for information purposes only and does not purport to be a complete description of the markets or any securi-ties referred to. The value of investments, and the income from them, can go down as well as up and past performance is no guarantee of future return. You may not recover what you invest and investments may not be suitable for all recipients.

What’s in store for Markets in 2015

Concern about short-term investment in the capital markets has been raised by everyone from Al Gore, the former US-presidential candidate and founder of Generation Invest-ment Management, a sustainable investment fund manager, to Michael Lewis, author of ‘Flash Boys’, the book which documents high-frequency trading. Over the last ten years peterevans has built up a strong relationship with the School of Computer Science and Informatics in Cardiff University, actively engaging with the Department to offer work experience placements and also a prize to second year students. peterevans has run an 8-10 weeks placement scheme for students between their second- and third-years since 2008,

with an additional annual provision of a prize for the highest-achieving student in the second year course, awarded purely based on the results of their academic work. The university recently introduced 'sandwich' degrees that allow a student to take a year-long industry placement in between their second and third years of study in order to better assist their understanding of the business they will work in, a programme supported by peterevans. The School’s Prize Giving Ceremony featured peterevans’ MD Dr Mike Foley, who was delighted to present the prize for the highest-achieving student in Year 2 Computer Science to Umar Arshad. Mike accepted an invitation from the university’s external advisory board joining other academic and business heads in order to help direct the School of Computer Science and Informatics’ strategy around course development and student skills from the perspective of developments in technology and industry. For further information visit www.peterevans.com

Education: A long-term investment

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Best in the Business? The City of London Wealth Management Awards are now recognised as the leading

accreditation process for investment firms. Winners are genuinely determined by votes

from investors themselves and the process is overseen by an independent panel of judges.

Enter NOW

Firms must provide a submission for the Company Awards they wish to enter. This is a

simple process and entry for the Awards is completely free of charge. All shortlisted firms

will be put through to the public vote.

The Guildhall, 17th March

Award Winners will be announced at a Gala Dinner at the Guildhall on 17th March 2015.

For further details contact: events@goodacreuk.com or +44 (0)20 7422 0063

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The advent of PS14/9 highlights the FCA’s continued

focus on the importance of client protection.

PS14/9 mandates that firms must put in place systems and

controls that are necessary to meet their obligations to

maintain their records and accounts, in a way that ensures

their completeness, accuracy and in particular their corre-

spondence to safe custody assets and client money held for

clients.

The FCA expect better recordkeeping and record retention

to prove controls are in place, operating effectively and that

clients are indeed protected.

The countdown is upon firms

The final phase of the CASS regulations will come into force in June. AutoRek’s PS14/9 whitepaper highlights the key changes that will come into force for both custody assets and client money. The impact on reconciliations is significant, arguably the strongest control firms have at their disposal for ensuring that clients are protected.

However, with fines at record levels and S166 Skilled

Persons Reviews on the rise again, is PS14/9 really going to

make a difference?

The FCA are clearly trying to drive up client protection, but

at the same time it could be argued that PS14/9 is mandat-

ing what firms should have been doing all along. Fines

within the financial services industry are almost considered

the norm these days, and so it will be interesting to see how

the FCA react post 1 June 2015. The new CASS rules

potentially give the FCA a bigger stick to shake at firms.

So what now?

The CF10a position was established over 3 years ago.

Could we now expect to see the CF10a being personally

sanctioned – after all the CF10a oversees the operational

effectiveness of systems and controls designed to achieve

compliance with CASS. It will be interesting to see the

direction of travel the FCA decide to take.

No one says it’s easy

At a time when financial institutions already face a range of

significant economic and regulatory challenges, there is no

doubt that their capability and capacity to deliver on PS14/9

will be tested. Multiple products, multiple systems, multiple

currencies and multiples locations all add to the complexity.

But is there a more fundamental issue that still needs to be

addressed? Do organisations need to take a step back and

ask themselves a simple question – do those who work

within the remit of custody assets or client money, irrespec-

tive of their level within an organisation, know what they do,

why they do it and the implications to clients if it goes wrong.

Perhaps a CF10a would sleep more comfortably at night, in

the firm knowledge that the right people are in the right jobs.

What’s the answer?

Labour intensive, manual processes and manual reconcilia-

tions which strive to match multiple transactions are not part

of the answer.

Without streamlining the collection, reconciliation and

reporting processes around custody assets and client

money, businesses are likely to spend less time understand-

ing the business impact of terms of business and client

behaviours. Furthermore, without scalable processes, the

organisation is susceptible to significant failings and

regulatory and reputational risk.

Fully understand your data, your custody asset and client

money data flows, and ensure you have robust, automated

financial control regimes in place. Demonstrate to the FCA

that you are indeed in control, and meeting PS14/9

requirements. Otherwise your firm may be the next to hit the

headlines.

For further information contact AutoRek on:

T: +44 (0) 845 603 3613

E: info@autorek.com

www.autorek.com

PS14/9 – will it truly make a

difference to client protection?

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Goodacre has teamed up with Managers of Wealth and

now offers substantial discounts.

The Managers of Wealth (MoW) publication is a useful and popular news portal. Unlike other sites, MoW

doesn’t ‘re-hash’ news stories. The MoW editorial team collects relevant news around the world displays it online in an easy to review format. The site carries

news on a wide range of relevant wealth management subjects ranging from compliance through to

investment management.

For a limited period, we are offering 25% off a six month subscription for up to four users to Managers

of Wealth.*

Further details call +44 (0) 20 7422 0063.

*Offer only valid for new customers

Discount for Managers of Wealth

Subscription

The Job Market: What’s Hot and What’s Not

The demand for resources within the investment sector continues.

Demand for experienced Compliance resources remains high, particularly those with a

sound understanding of CASS. However settlement and support functions are under

pressure as cost-cutting measures (typically through improved technology or outsourcing)

are implemented to assist with increased regulatory expenditure and a need to pay more

to top performers in the front office.

Phil Smith, Goodacre’s Director of Recruitment Services said “We continue to be very busy

on a number of fronts both for our Wealth Management and service supplier clients,

particularly in the sales, business analyst and compliance areas. Demand for operations

staff has declined although a number of firms are in the market for senior experienced

personnel as they consider forthcoming system changes”.

Goodacre UK Recruitment

RBS launches sale of Coutts ...

Next-gen to get $16 trillion of ultra-high net worth wealth…..

Standard Chartered to close Swiss private bank…..

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The City of London Wealth Management Awards

Tuesday 17th March 2015

The Guildhall, London

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Thursday 9th July 2015

London

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Friday 2nd October 2015

London

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