All parties will need to embrace the evolving new reality, including an increasingly digital society, changes to working practices, demands for sustainable finance and greater awareness of global inter-connectedness. Regulators will demand that firms take greater care of customers. Strong governance and good conduct have long been regulatory imperatives, but as we look ahead, firms’ duty of care will be reshaped and brought to the fore.
- A focus on operational resilience will move to the top of the agenda – business continuity planning (BCP), IT, cyber security, AML, protection of client assets and data. Regulators will require firms to show that they have thought about lessons learned through the pandemic and that they are actioning them accordingly
- The key topics of liquidity management of open-ended funds and use of leverage will also remain top areas of focus
- Regulators are keen to enable technology that makes investing simpler and cheaper for investors, but they wish to protect the investment ecosystem from technology that facilitates crime or can lead to poor investor choices. Firms’ technology and digital transformations will therefore be kept under close scrutiny
- Firms’ duty of care will be re-articulated. Regulators are requiring firms always to put clients’ interests before their own and are asking questions about stewardship and short-termism. Firms must ask themselves not ‘can we?’ but ‘should we?’ Increasingly, regulators are likely to threaten enforcement action if firms’ culture and conduct do not meet regulators’ and clients’ expectations
- The search for meaningful disclosures to investors over costs and performance will continue. Regulatory approaches to commissions and payment for investment research are once again under review, and performance fees are on the agenda.
- Sustainable finance or ESG will continue to be driving forces. The pandemic has added to the momentum. Regulatory initiatives will spread around the globe, with a growing focus on social issues (including diversity) as well as environmental ones
- There will be significant opportunities too – new fund vehicles, a loosening of rules on underlying assets, and increased opportunities in the retirement savings market. Regulations that prevent cross-border distribution, registration and foreign ownership are being eroded, and there is an easing of the extra-territorial impacts of national rules. On the other hand, regulatory and fiscal demands for firms to have ‘substance’ in a jurisdiction have increased, and the UK’s departure from the EU has created new borders that the industry must navigate