Blog

Update

Regulatory teams face another tough year in 2023, as further divergence between the EU and UK regimes extends the list of rules to be followed across to two separate codes. Asset managers will have to wrestle with a wide range of regulations in 2023, but the recent Edinburgh Reforms could cause particular headaches. As could getting to grips with SDR and SFDR. Meanwhile, Consumer Duty remains very much in the headlights.

Simmons & Simmons managing associate James Wallace said that, while it is ‘too early to tell whether there will be material changes to the UK's financial services as a result of the Edinburgh Reforms. Few are anticipating equivalence. Smaller UK-focused managers may wish to capitalise on divergence from EU regulation,’ he said, ‘but international firms with operations in Europe may prefer alignment.’ 

Wallace added that ‘complying with one set of rules is easier than two. For many asset managers, root and branch reform is not an appealing prospect, especially with the uncertainty of a possible change in government at the next general election’. For most asset managers, however, the Level 2 SFDR rules implementation on 1 January 2023 presents the most urgent of difficulties.

Myron Jobson, senior personal finance analyst at interactive investor, described the effort of verifying ethical funds’ claims as ‘a pain’ under the current disclosure regime. ‘Not many people will have the patience (or inclination),’ he said, ‘to sift through documents relating to ethical funds to establish whether their credentials stack up. The lack of common reporting standards, clear terminology, and easy-to-understand classification and labelling make it impossible for consumers to compare and accurately assess and identify the products that align to their moral values.’

The UK and EU’s respective SDR and SFDR regimes intend to make this assessment simpler for investors. But, for fund houses, the ever-developing task has created some issues.

At what appears a watershed moment for the industry, managers are at risk of misunderstanding Consumer Duty. Phrases like ‘we intend to enforce this aggressively’ from the regulator should be ringing alarm bells for firms, who will be judged based on how they deliver outcomes. This puts advisers in a very different universe.

Link: https://www.investmentweek.co.uk/news/4062031/industry-mounting-list-regulatory-equivalence-drifts