Prioritisation is frequently a bigger challenge than we realise. It is always tempting to see the process of prioritisation as a waste of good doing time. That of course is to under-prioritise the prioritisation process. An error to which most of us are prone.
With that in mind, allow me to offer a few thoughts on where compliance priorities should now lie. Four thoughts for your penny.

Everyone knows that ‘authorised fund managers’ are going to have to appoint at least two Independent Directors.But there is much less clarity in many places over which firms are caught by this requirement and about whom they should approach and when. Sometimes significant lead times, such as apply with this measure, serve to create a paralysis in which the best drives out the good. Our advice is clear: this is an example of a measure where early implementation provides a definite advantage. Why should that be? Quite simply because some 500 Independent Directors need to be found and secured between now and end September next year – 16 months from now. While there may be plenty of volunteers, there is less likely to be plenty of good candidates. Wise firms move ahead of the pack.

Even if low on the popularity scale, the Assessment of Value,now prescribed in PS 18/8, is innovative. The novelty of this regulatory tool means that there will be much diversity of approach from those who have to generate the assessment and to publish a summary of it. Over time that diversity may well diminish as practices converge, but it will be at the outset that the most significant and challenging questions will arise from the assessment. It might be an untypically high management charge; it might be the need to confront consistently poor performance; it might be the need to review the fund’s strategy of staying close to the index. What will be typical will be the front-end loading of these questions – they will arise the first time the assessment is produced; thereafter, known problems should have established solutions.
That questions how the Assessment of Value is initiated for each fund. The first disclosure required relates to the fund’s year that end on or after 30thSept 2019. That means that every fund has a prior year in which experimentation can be done in confidential circumstances with no obligation to publish conclusions. This is not some deception designed to disadvantage investors – the FCA has provided time to facilitate an orderly introduction and will welcome prior assessments by which the AFM explores the value of its offering and looks for ways to enhance the benefits of using its products.

Whether or not it feels like an old chestnut, FCA has again affirmed, in its Business Plan, its intention to review firms’ success in delivering best execution.What are they looking for? Ostensibly, the regulator’s review is to establish the effectiveness of MiFID II implementation. But there is more to it than that. First there is the FCA’s frustration that the industry has not reacted effectively to the regulator’s extensive guidance from its thematic review of 2014. Too many firms are perceived to have dismissed the review as applicable only to the clueless few. But anything short of a detailed gap analysis will not satisfy the supervisors. Next, there is the appropriate adjustment to unbundling. The removal of research from the benefits acquired through transaction charges, removes the main subjective assessment of value for money. Execution purchased becomes a cleaner and more easily evaluated service. To trump price differentials, other execution factors will have to stand out exceptionally. Price conquers all.
The final aspect that FCA will look at with keen interest is the meaningfulness of the Order Execution Policy. Although never stated as clearly as it probably should have been, the MiFID II measures are an attempt at procuring improvement in OEPs, to add meaning to the verbiage frequently found in Policies of old. And they will also look at adherence thereto.

It is for good reason that FCA has delayed the introduction of SMCR:to give the industry time to prepare. While the temptation may be to view SMCR as next year’s project, the Staley fine (£642k) is a reminder that the regulator expects to make good use of its new powers when rolled out to a wider audience. A principal feature of the regime is the Statement of Responsibility. These keys to the future focus of any challenge to a manager’s discharge of his oversight duties, need careful construction with consultation and involvement at every stage.
But an equally important preparatory step is to ensure a high level of understanding of the regime right across the business. The most widely overlooked aspect of the regime is the application of important parts of it to all professional staff. Despite the name, SMCR applies, for the first time, FCA disciplinary scope to all staff except those employed in support services only. The Conduct Rules may seem basic, but Staley’s expensive offence was a breach of ICR2 (Skill, care and diligence). While FCA gave him the benefit of the doubt in relation to his intentions, it took exception at his failure to consult appropriate experts or even to make a note of the all-important meeting on which he based his decision to hunt down a whistle-blower. And his rather obvious conflict of interest seems to have escaped his attention. Others need to ensure that they are more aware than he. Training is both mandatory and invaluable – it should begin in good time.