John reflects on a busy week for the UK’s regulatory body, as it slams asset managers on best execution preparations, while also seeking to maintain the country’s position as one of the top global fintech hubs.
Who would want to be a regulator? While I can’t claim to be acquainted with the intricacies of day-to-day life overseeing the operations of financial markets, on the surface it seems to be a thankless and often frustrating task.
This week UK regulator the Financial Conduct Authority (FCA) sent out a stark warning to asset managers on best execution practices, stating in a press release that “much of the poor practice outlined in its prior thematic review has not been addressed.”
In particular, the FCA pointed out that while asset managers “had management information that allowed them to accurately view equity execution costs,” the use of the information was inconsistent, and many firms “could not evidence any improvement to their execution process based on these data and the review of it was largely a 'tick box' exercise.”
Another point of contention for the FCA was that many compliance staff were not empowered by senior management to provide an “effective challenge to the front office on execution quality.”
As I wrote in my Mifid II: Best Execution May See Heads Roll feature last year, Mifid II will introduce a sizable shift in how best execution is measured and demonstrated, so it’s concerning to see the regulator making such an assessment of the buy side’s readiness, particularly given that its thematic review was carried out in 2014.
The FCA said it will return to the issue this year to evaluate what asset managers are doing to remedy the gaps in their best execution practices, but stopped short of mentioning any kind of enforcement action. Should the regulator find that the industry hasn’t sufficiently moved since 2014, or even worse, gone backwards, harsher action may need to be taken.
While the FCA grapples with the UK buy side to improve its best execution practices, it also has an eye on the wider fintech community. The outcome of Brexit is still far from certain and until Article 50 is actually triggered, much will remain unknown.
There has been plenty of speculation about what will happen to the London’s status as the go-to European fintech hub once the UK withdraws from the European Union, but apart from the odd contingency plan being drawn up, most firms are having to remain patient until more details are made public.
In the meantime, the FCA is attempting to build relationships outside of Europe and its latest effort is to establish a framework to develop fintech firms and innovation with its Japanese counterpart, the Financial Services Agency of Japan (JFSA).
An exchange of letters between the two regulators was published this week, outlining a project to “provide a regulatory referral system for Innovator Businesses from Japan and the UK seeking to enter the other’s market.”
While similar frameworks have already been established by the FCA with other Asian regulators, Japan isn’t exactly famous for its financial services technology industry. Hong Kong and Singapore are the main two superpowers in Asian-Pacific when it comes to fintech, but perhaps the FCA is instead looking to reach out to any potential partners it can outside of Europe before the inevitable finally happens.
Adam Sussman joins Anthony Malakian to talk about Liquidnet's acquisition of OTAS, machine learning and AI, and what the buy side wants from analytics platforms.Subscribe to Weekly Wrap emails
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