– The new structure recognises the role of investment managers as ‘agents’
– Good working relationships between regulators will be critical
– Concerns about different retail investment products being regulated differently
– Balance is needed in the regulation of wholesale markets and market infrastructure
Under the structure announced today: banks and insurance companies will be prudentially regulated by the new Prudential Regulation Authority (PRA) and all firms will be regulated on conduct of business by the new (CPMA), including investment managers. Exchanges, clearing and settlement systems will be supervised by the Bank of England, alongside its existing responsibilities for payment systems. And the Government is to consult separately on whether the UK Listing Authority should be merged with the Financial Reporting Council (FRC), under the Department for Business, Innovation and Skills (BIS).
Commenting on today’s announcement, Julie Patterson, director, Authorised Funds & Tax at the IMA said:
“We welcome the recognition of the agency role of investment managers, which will be supervised by the Consumer Protection and Markets Authority (CPMA). Investment managers are different from banks and insurance companies. They act as agents for investors of all types. They are not principal risk-takers, were not a cause of the credit crisis and do not represent a systemic risk.
“There is a rationale for each piece of the proposed re-allocation of responsibilities between statutory bodies, but viewed as a whole we have some concerns. If the regulatory landscape is to be fragmented in this way, there must be close and continuous co-operation between regulators. The objectives of the individual regulators need to be clear and to mesh together. History is persuasive – failures happen when there are gaps in regulatory oversight, when regulators fail to co-operate or when they fail properly to fulfil their obligations. The proposals provide a framework for relationships to work.
“However, the proposals do nothing to level the playing field between retail products. In fact, they risk exacerbating the current differences. Disclosures at the point of sale will all come under the CPMA, but regulation of what is in the products themselves will differ. Authorised funds are subject to detailed and comprehensive rules to protect retail consumers, which we understand will come under the CPMA. Listed, closed-ended investment companies – investment trusts, REITs and VCTs – are subject to special listing rules designed to protect the general interests of investors, which it is proposed will sit with the Financial Reporting Council (FRC). The regulation of insurance products, such as it is, is within the prudential rules for life companies, which will sit with the Prudential Regulation Authority (PRA). And banking products are subject to no real restrictions on the risks of the underlying investments.
“In relation to the regulation of wholesale markets, it is essential that regulators balance sell‑side and buy-side interests. Investment managers, as users of the market on the ‘buy-side’, act on behalf of their clients: pension funds, charities and ordinary investors. There needs to be an efficient and effective mechanism for their voice to be heard. The objectives of the CPMA should allow for that, and we would urge the Bank of England, in its new role as regulator of all exchanges, clearing and settlement systems, to take full heed of buy-side views.
“Given the rescues of banks during the credit crisis and the specially increased compensation arrangements, there is a belief that if anything goes wrong, banks will be bailed out. This is economically untenable – no regulatory regime can be ‘zero failure’. The CPMA should not seek to perpetuate this. It is also important that the CPMA, in its regulation of the retail market place, recognises the importance of innovation to meet changing consumer needs and the wider European dimension for funds.
“Today’s proposals will mean fundamental change, which will take a lot or work and will require the focus and attention of many. IMA is committed to helping the Government make it work for our members and for their clients – ordinary investors. It is important that in the process regulators’ eyes remain on the ball.”
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