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Articles and opinion

Earlier in February, Rosalyn Breedy examined the compliance challenges facing the wealth management industry at the 2019 Compeer Annual Conference ‘Adjusting to Change’ in London.

Alongside MiFID II, Brexit, SMCR, GDPR and cyber security, wealth management compliance teams are finding that their role is changing. They are starting to look at the wide range of compliance issues holistically, and this includes considering reputation management.

How does it look if a client is told that their portfolio value has dropped by 10 per cent, and then they get a letter telling them that charges have gone up?  Similarly, private clients were not happy last year when they were surprised by the requirement for legal entity identifiers.

‘As lawyers, we regularly advise on ascertaining, monitoring and enforcing regulatory compliance, but are increasingly being asked to help clients decide what is the right thing for the wealth management firm to do. 

While firms are usually comfortable with understanding and applying compliance rules, there is not always an understanding in regard to interdependence with the law.

It is important to understand the impact of the implementation of these new rules on your clients.  For example, under MiFID II firms are currently concerned with looking at initial and ongoing charges with investment products, investment services and third-party payments.  The Retail Distribution Review regime, under FCA handbook Conduct of Business rules chapter six, is still in place which means that firms need to be careful about aligning and making costs consistent, ensuring disclosure of charges, and evaluating how clients perceive this information.  The effectiveness of investor protection under MiFID II for wealth managers will arise from the collection and evaluation of evidence on best execution, product governance, and the impact on clients from a suitability perspective.

There was a lively debate about Brexit at the conference, and Rosalyn warned that ‘Firms will have to think about how they will ensure they are compliant and may need to make necessary changes to roles, responsibilities and contractual provisions.  As 20 per cent of City professionals are EU nationals, employers will need to help them protect their rights under the EU settlement scheme.’

A year on from the implementation of GDPR, firms are often reliant on the information received from third parties, so you do need to look at your contracts and ensure that you are able to receive the information you need when you need it. 

One challenge facing the industry which had somewhat fallen off the agenda, despite GDPR, is cyber security. ‘Many firms still do not understand when or how to notify breaches of personal data, and if you are looking at your risk and crisis management processes, this is also something firms need to be considering.’

With regard to Senior Managers and Certification Regime, there is a risk of underestimating the personal impact on senior managers. As there is a lot of consolidation within the industry, more firms are outsourcing and senior managers may find they are responsible for people who don’t work for them directly and they may have to manage issues that arise from historic events at an acquired firm.

Strong leadership will be required, and firms need to be much more client-focused, engage with employees, and ensure good communication as well as complying with the regulations.

Rosalyn encouraged directors to have good substantive values, and to comply with the spirit as well as the substance of the law.