At the beginning will be Brexit. At the end will be Brexit. And in between it will mainly be Brexit. I hope that those remarks relate to 2020, not to the whole decade, but I am probably wrong. There will be no escape from the great escape.
But where I really hope we are wrong is in expecting the worst. Certainly Brexit will present many challenges, but the Brexit optimists among us, including the new government, view this as a new opportunity. We have lived without passports before and we will have to do so again. We will focus much more on the world’s fastest growing economies and we will fight protectionism wherever we find it. More and more and more of this anon.
Swiftly moving on, or perhaps back, it is tempting to think of SMCR as so last year. However, as we know, the ever considerate FCA has staggered implementation, ensuring that there is still some SMCR to enjoy in 2020. Certification and Conduct Rules training spring to mind as aspects to follow on, but, and in many ways more importantly, proper embedding of the senior managers in their new circumstances is also a must for this year. Has each one got a copy of the DEPP guidance pinned to his desktop? Are they ready to answer the question of how they, as an SMF manager, have taken “such steps as a person in their position could reasonably be expected to take to avoid the contravention of a relevant requirement by the firm occurring (or continuing)” ? If the FCA come to visit, they are likely, on that occasion, to express their views in plain English.
And talking last decade, the Asset Management Market Study may now feel like ancient history, but in truth its key aspects, Assessments of Value and Independent Directors, are bound to be making the headlines in 2020. At some point in the year, every authorised fund will have to be assessed and publicly reported, with invaluable and prescribed input from the Independent Directors. Will we see rigour accompanied by a degree of self-flagellation or will there be whitewash on every webpage? Better the former – the latter will not avoid the flagellation; it will merely transfer its administration to the FCA. And first in line for the cane will be the Independent Directors.
The bizarre introduction of the requirements of SRD II, published only days before implementation, will not preclude a more robust approach in 2020. Even those who managed to publish a substantive engagement policy before the Christmas party will, this year, be facing the need for their first annual disclosure. How did you vote in those non-routine corporate ballots? We must be told, as must the press and the activists, unless, of course, the firm is ready to explain its non-compliance. Many would say that there were more and better reasons to maintain confidentiality than to comply with rules that FCA admitted it would not have applied had it had any discretion in the matter.
In an apparently genuine coincidence with other developments, FCA produced, last year, new rules for the treatment of funds investing in inherently illiquid assets – these to be implemented in the quiet calm of autumn 2020. Affected authorised fund managers, as well as other firms making mention of FIIAs, will be notifying the happy holders and those encouraged to contemplate taking the plunge, of their fund’s new-found status and what their manager’s smart new liquidity risk management strategy looks like. Even depositaries will be dragged from the shadows to strut their stuff in assessing liquidity profiles, overseeing liquidity management systems and notifying the FCA of anything that FCA would reasonably view as significant. Few depositaries enjoy the lime-light, but guest appearances may become more frequent.
Audience participation is invariably tiresome, but there may be some scope for dedicated spectators this year as well. Take the role of FCA CEO. Or rather, don’t. The most poisoned of all chalices may be up for grabs this year, but our recommendation is leave it for someone else. Don’t be tempted by the money. Don’t be tempted by the glamour. And don’t expect that taking the job will lead you to the Governorship a few years later. Keep this one firmly in the spectator category and see who falls for it.
Clearly we should also expect to see some sparks from the sweeping up of the Woodford car-crash. While a great deal has been said about this sorry saga, there is also much that we do not know. The challenge facing the regulator is to be seen to do the right thing while avoiding the easy trap of judging with the benefit of hindsight. Pressure from Parliament will be piled on and more than a few in the industry would have no regrets were some of the players to be humiliated further, but the regulator is quite experienced at not pleasing the crowds and will need to keep a very steady nerve as it publishes its conclusions. Whether this will be the end of the career of some hapless interim FCA CEO or just a hospital pass for the new girl on the block remains to be seen.
Final thought for the year: prepare to hear further about the acquisition of research. After its blithe note about its alleged review last autumn, the FCA has held in reserve a number of points that it will want to make. While it struggles under the yoke of the EU, it must work with the clumsy drafting of its own intentions as distorted by the EU27 and unheard-of numbers of translators. Once freedom of speech is restored to the FCA, we should expect its views to be clarified in all its favourite areas, of which this is firmly one. It may concede that the original drafting was so poor as to be unactionable, but it will, by then, have a little list of those who need to try harder. So, for 2020, it may be no names, no pack-drill. Nothing like having something up the sleeve for 2021.
With all the fun of the year, we are here to help.