Has the urgency passed? Preparing for regulatory changes in the investment management industry

After several weeks of turmoil and uncertainty in the UK, we now have a new Prime Minister in place. While fiscal and budgetary discipline will be the guiding principles of the new Cabinet, details of the policies that will prevail over the next few months are yet to be worked out. In an about turn, what seemed urgent in September now seems to require prudence under Sunak’s stewardship. He has already announced the postponement of the execution of one of his campaign pledges; to repeal and transform the EU laws still in existence in the UK due to resource prioritisation, with a mechanism to maintain this legislation in place until 2026 now under consideration.

Does this resolve the question whether the post-Brexit regulatory UK regime for the Investment Management industry should lean towards convergence with the European regime, or the contrary? The reality is that it is difficult to know the answer to this question. Nevertheless, this delay gives the investment industry more time to consider, influence and prepare the changes ahead, not only with regards the issue of UK/EU regulatory alignment, but also with regards the key regulatory topics of the industry: Customer and market protection; ESG; cryptocurrency; artificial intelligence; sustainability; digital; international operating models, and resilience for example.

This preparation requires discipline and commitment. In that spirit, we take inspiration from the guests of a podcast we recorded on the FCA strategic and business plans[1] to propose six guidelines to organise your approach:

Dedicate ‘change’ resource inhouse

Regulatory change is business as usual, it is an ongoing concern. As such, there should be a unit dedicated to changing the firm from a regulatory perspective within your legal and compliance operations function. That unit should be comprised of lawyers, professionals, and project managers, and appropriately budgeted for, because you not only need to keep abreast of regulation but also implement required changes within your organisation. This requires time, resources and effort.

Engage with trusted advisors

Even if there is a function in place and you are doing all the work, you should consider partnering with external third party organisations, such as a law firm or a consultancy firm, to get them to provide assurance of your work, especially on topics which are new to the industry and requires concerted and considered attention and response.

Master the language and lingo

Make sure you learn the language and understand the lingo which is in play, and reflect that in your day to day conversations, be it at board level or within the organization. And ask the right questions to stakeholders in those terms.

Culture matters

Regulators require clarity on how much culture matters to your firm.  Make sure therefore that all of this is reflected in the tone that you set from the top, the organisation values and culture and so on. For example, if you profess putting your customers at the heart of your operations, make it a priority to more than adequately demonstrate and evidence this across all levels of your organisation.

Engage with the industry, in the UK and beyond

There is power in the industry network which everyone should put to good use by engaging with the industry and the regulators, locally and internationally. All of these firms have global operations and come up with solutions and regimes that work for all of them, but ultimately, there is commonality between these models and yours that you can benefit from.

Embrace the Brexit paradox

Now that the UK is a ‘third country’, European financial markets still remain UK’s largest market. What the Brexit paradox means is that, although the UK is no longer part of Europe, we need to be more engaged in Europe and not less engaged post Brexit, not only to keep abreast of the developments of the European legislation, but also to possibly continue to influence some of its outcomes.

[1] “Regulations and FCA strategic plan, in a rapidly changing environment’, with James Ross and Raza Naeem, https://www.algome-consulting.com/2022/07/28/coffee-with-algome-consulting-podcast-regulations-and-fca-strategic-plan-in-a-rapidly-changing-environment/