Global legal and business outlook: future + change

Change seems to be the only constant in the financial services sector. From the continuing effects of Covid and the Ukraine war to ‘higher for longer’ interest rates, faster growth in Emerging Economies and the rise of artificial intelligence. Not to mention significant watersheds ahead for the political landscape in key economies.

But while uncertainty and volatility remain high so too do the demands placed on the sector: the need to finance (and deliver) productivity and pensions and, of course, the drive to fund the long-term investment so vital for ESG in general and the Blue Economy in particular. And the need to respond to generational shifts in savings and investment habits and the demands those place on the fintech element at the heart of the financial services sector.

In this session we offered help in navigating sometimes turbulent waters by identifying headwinds and likely fairwinds; by helping to make the future present.

Speakers:

• Charlotte Stalin
• Rob Turner
• Andy Hartwill

Key takeaways from the session

"Headwinds and tailwinds are certain in the near-term but a New Normal whose landscape is being shaped by the tectonic forces of ESG and digitalisation with a generational shift in savings and investment habits to maintain the momentum. Change is the only constant."

Andy Hartwill, Client Insights Lead

Our UK and European regulatory team provided an overview of a number of potential developments and regulations outlining what is next for sustainability legislation. They discussed potential developments that are in the pipeline within sustainability regulation, the timeline for implementation of the UK’s SDR, achievements of Europe SFDR and what is next, and the prospects for a UK green taxonomy and how closely would it align with the EU taxonomy.

Our international panel of funds, tax and pensions experts discussed the latest EU and UK developments in terms of structures and products facilitating access to illiquid/less assets. Covering topics such as the new LTAF and ELTIF structures as well as pensions regulation, tax and “marketability”, they delivered an overview of recent initiatives in this rapidly growing area.

The asset management industry is undergoing significant disruption. The impact of digitalisation, culture and hybrid working coupled with more internationalised markets is making the industry evaluate its business and operating models to better serve its future. We looked at the transitional journey and implications for both the legal and business teams in adapting for the future.

Private Structures and Regulatory Considerations

Our panel of experts shared their insights on the structuring and regulatory considerations for a family office in Hong Kong and Singapore, two major wealth management hubs in Asia.

Speakers

• Benedict Tan
• Eva Chan
• Jek-Aun Long
• Paul Li

Key takeaways from the session

• Hong Kong and Singapore have increasingly varied licensing and regulatory regimes for family offices
• As private wealth hubs, Hong Kong and Singapore both offer different opportunities dependent on financial priorities and objectives. Interaction with China remains a huge consideration.
• Operations of family offices across Asia have evolved and become more sophisticated as the competition for domiciling continues to rise.

In this session we focused on:

• The EU AI Regulation and the outlook for the future
• Data privacy and AI
• Similar developments in the Middle East and Asia

Speakers

• Minesh Tanna
• Sophie Sheldon
• Angus Brown
• Raza Rizvi
• Yingyu Wang

Key takeaways from the session

• AI governance needs to start now
• Organisations are unfamiliar with AI in this new, fast-moving area
• AI governance requires a multi-disciplinary effort within organisations, but with legal heavily involved given increasing AI regulation.

Our expert panel shared their insights from a UK, European and US perspective on trends they are seeing in the ever continuing stream of M&A activity involving asset and wealth managers, from 100% sales to minority stake sales.

Speakers

• Ania Rontaler
• Patrick Boyd
• Thierry Somma
• David Hicks
• Meir R. Grossman

Key takeaways from the session

In contradiction to some of the current press we are seeing, whilst M&A activity generally is quieter in the UK, US and Continental Europe, it's certainly not quieter in the in the asset management and in particular the wealth management space.

• In the UK we’re seeing a buoyant market with high levels of both asset manager and wealth manager M&A. We’re seeing market consolidation with larger asset managers acquiring smaller ones and this can be with an eye to acquiring new strategies and access to retail through M&A. Additionally on the wealth manager side we are seeing a lot of vertical integration – investment managers purchasing wealth managers to build out that function and connect with end clients. It is also being seen as attractive for investment because it has strong returns, loyal and growing client bases has fewer capital requirements.

• In the US we are seeing an uptick in wealth management deals compared to other sectors like healthcare or fintech. 2022 saw over a 10% increase from 2021 and marked a 10 year high in that space.

• In Continental Europe we are seeing a very high level of M&A activities though seeing more in the way of merger activity, including group consolidations or group restructurings rather than the very active acquisition phase seen up until 2022. We are still seeing traditional acquisitions but these are now on a smaller scale.

Main drivers behind active buying and selling in this space

• Margin squeezes on the managers from ever changing regulatory landscape.

• Investor pressure on fees.

• Inflation pressures and increasing costs.

• Increasing AUM.

• Difficulties with succession planning.

• Compliance and regulatory costs have increased significantly.

• Lots of dry powder that private equity are looking to invest and their subsequent interest in the wealth management sector as platforms for their buy and build strategies.

• Dollar is relatively strong against the pound - UK market attractive to US investors.

Deal features we are seeing

• In the UK on one hand, there is a lot of volatility in the market leading to buy and sell side exercising a little more caution before they before they sign deals and therefore we are seeing deals taking a little longer.

• On the other hand, regulation approval is taking less time, therefore deals could be completing faster.

• Regulation approval in European markets is taking more and more time, therefore time to close is impacted.

• Buyers need to engage with the transition planning of the acquired business earlier. Particularly where in wealth management they also need to consider the risk and specificities around moving clients.

• Lawyers have become more involved with transition planning and restructuring.

In this session we started on our EU Retail Investment Strategy (RIS) journey together and heard from our global regulatory experts on their reflections on the RIS, looking specifically at areas which could significantly disrupt asset managers operating models. During the panel discussion we also shared observations from our interaction with trade associations and industry on what is top-of-mind for firms in these initial stages.

Speakers

• Catherine Weeks
• Harald Glander
• María Tomillo
• Derek Lawlor

Key takeaways from the session

What is the significance of the EU Retail Investment Strategy?

The EU Retail Investment Strategy (RIS) has been described as ‘the most ambitious legislative proposal since the inception of EU financial regulation’ by Mairead McGuinness.

Put plainly, the RIS is the EU Commissions strategy to place investors at the centre of retail investing – delivering on a key objective of its Capital Markets Union action plan. It seeks to enhance the existing legislative framework for investor protection amending 5 major existing European legal frameworks, MiFID, UCITS, AIFMD, IDD and Solvency II (PRIPPs amendments are also happening in parallel). There a still a lot of steps in the process to implementation stage with the earliest prediction for final RIS being Q3 2024 and the earliest prediction for transposition into national law being Q3 2025.

What are the challenges the EU commission’s proposal is trying to improve?

There are four main buckets of ‘harm’ the EU Commission proposal aims to address:

1. Proposing ban on inducements for retail XO/RTO services
2. Product governance: introducing new pricing processes for retail products, including comparisons to new ESMA pricing benchmarks
3. Significant amendments to client disclosures
4. Modernising marketing practices

In this session we focused heavily on the two areas we are currently seeing industry focusing their attention on most and that is inducements and pricing (or value for money). Industry bodies across the Member States are actively commenting on the proposal and sharing their thoughts and the impact on the business.

What are the main takeaways in regards to the inducements and pricing/value for money proposals?

The partial ban on inducements for retail XO/RTO services will have a significant impact across the EU and will affect many market participants in different ways, depending on their respective distribution models. The view across the Member States is very divided also because those rules would have a different impact in each market; thus, the recent draft of the rapporteur which does not contain the inducement ban for XO/RTO is highly welcome by many market participants.

A key area of attention around pricing and value for money proposals relates to how pricing benchmarks are going to be formulated. The Omnibus Directive is imposing a new requirement that costs are not undue and that they are justified and proportionate and must be benchmarked on an annual basis. The benchmarks will introduce that element objectivity, but they don’t yet exist providing uncertainty from the outset for firms.

In this session our global regulatory experts took a forward look at Hedge Fund Reform in the UK, Asia and the Middle East, sharing insights on UK changes (including the Short Selling Regulation (SSR) and Review research rule changes), and what’s on the horizon for hedge funds in Singapore, China and the Middle East.

Speakers

• Nick Colston
• Darren Fox
• Melody Yang
• Muneer Khan

Key takeaways from the session

• As a hedge fund manager, looking at the Middle East to set up portfolio management operations, marketing presence or to raise capital on a cross-border basis, what are some of the key things we need to know?

• As a hedge fund manager, what aspects of the UK’s proposed Edinburgh reforms are likely to affect me the most?

• As a hedge fund manager who wishes to trade Chinese markets, what are the common market access routes? Is swap still viable? What is Chinese regulators’ view on quantitative strategies?

During this session we discussed our approach to international financings and global finance. We covered the key things to consider when managing a cross border finance transaction.

Speakers

• James Taylor
• Céline Larmet

Key takeaways from the session

The outlook for the immediate cross-border European real estate finance market is mixed – the possibility of increased distress cannot be ruled out.

When structuring cross-border deals, consider (amongst other things) (i) structure (ii) security issues (iii) tax (iv) due diligence and documentation and (v) enforcement, in each case to the extent that there may be a difference to the way in which this would be approached/apply in a ‘familiar’ jurisdiction.

The asset management industry is undergoing significant disruption. The impact of digitalisation, culture and hybrid working coupled with more internationalised markets is making the industry evaluate its business and operating models to better serve its future. This session looked at the transitional journey and implications for both the legal and business teams in adapting for the future.

Speakers

• Catherine Weeks
• Sophie Sheldon
• Cathryn Bean
• Tair Hussain

Key takeaways from the session

The focus of the session was on the drivers and areas affecting managers' operating models:

• There are a number of factors driving the need for the evolution of asset management operating models including large political/regulatory developments, technology developments (eg AI), talent, client demands and commercial pressures (eg cost/revenue reduction pressures in the market)
• If asset managers stay static, they will fall behind.
• There is challenge and opportunity presented by investing in technology to reduce costs and increase efficiencies (working cheaper and smarter to help, for example, investment decisions and improve data quality).
• Investing in talent is central to evolving models – there is an opportunity to use remuneration as a means of incentivising and driving changes

In this session we discussed various regulatory updates related to the EU and UK such as:

• ‘Day 2’ of the Consumer Duty in the context of Payment Service Providers
• Authorised Push Payment (APP) fraud regulation
• Reform – Overview of the proposed Payment Services Directive and Regulation (PSD3) and the Future of Payments Review in the UK
• Trends and innovation

Speakers

• Angus McLean
• Oliver Irons
• Doug Robinson
• Neelam Hundal

Key takeaways from the session

Consumer Duty

The FCA has been clear that the Consumer Duty should represent a “paradigm shift” for firms but the scope of its application to payments and e-money businesses was harder to define than in other sectors. Post-implementation, we expect the Duty to impact the FCA’s approach to enforcement and supervision so firms should expect to have more conversations with the regulator focusing on whether there is a good outcome for its customers even where there is no breach of a specific rule.

APP scams

There is lots of work to do to get ready for the APP scam reimbursement requirement next year. As well as having to grapple with interpretation, implementation and possible unintended consequences, the industry will need to focus on how it can develop better fraud protection without impacting user experience.

Regulatory change and conflicting priorities

The next cycle of regulatory change for the payments industry has started, with PSD3 and reform of the UK framework taking shape. We expect to see areas of greater harmonisation but also divergence where national and regional interests don’t align, all of which is set against a backdrop of conflicting priorities between policy makers, pushing competition and innovation, and regulators continuing to focus on consumer protection above everything else.

In this session we started on our EU Retail Investment Strategy (RIS) journey together, hearing from our global regulatory experts on their reflections of which elements of the RIS will significantly impact business. During the panel discussion we also shared observations from our interaction with trade associations and industry on what is top-of-mind for firms in these initial stages.

Speakers

• Cathrine Foldberg Møller
• Catherine Weeks
• Harald Glander
• María Tomillo

Key takeaways from the session

What is the significance of the EU Retail Investment Strategy?

The EU Retail Investment Strategy (RIS) has been described as ‘the most ambitious legislative proposal since the inception of EU financial regulation’ by Mairead McGuinness.

Put plainly, the RIS is the EU Commissions strategy to place investors at the centre of retail investing – delivering on a key objective of its Capital Markets Union action plan. It seeks to enhance the existing legislative framework for investor protection amending 5 major existing European legal frameworks, MiFID, UCITS, AIFMD, IDD and Solvency II (PRIPPs amendments are also happening in parallel). There a still a lot of steps in the process to implementation stage with the earliest prediction for final RIS being Q3 2024 and the earliest prediction for transposition into national law being Q3 2025.

What are the challenges the EU commission’s proposal is trying to improve?

There are four main buckets of ‘harm’ the EU Commission proposal aims to address:

1. Proposing ban on inducements for retail XO/RTO services
2. Product governance: introducing new pricing processes for retail products, including comparisons to new ESMA pricing benchmarks
3. Significant amendments to client disclosures
4. Modernising marketing practices

In this session we focused heavily on the two areas we are currently seeing industry focusing their attention on most and that is inducements and pricing (or value for money). Industry bodies across the Member States are actively commenting on the proposal and sharing their thoughts and the impact on the business.

What are the main takeaways in regards to the inducements and pricing/value for money proposals?

The partial ban on inducements for retail XO/RTO services will have a significant impact across the EU and will affect many market participants in different ways, depending on their respective distribution models. The view across the Member States is very divided also because those rules would have a different impact in each market; thus, the recent draft of the rapporteur which does not contain the inducement ban for XO/RTO is highly welcome by many market participants.

A key area of attention around pricing and value for money proposals relates to how pricing benchmarks are going to be formulated. The Omnibus Directive is imposing a new requirement that costs are not undue and that they are justified and proportionate and must be benchmarked on an annual basis. The benchmarks will introduce that element objectivity, but they don’t yet exist providing uncertainty from the outset for firms.

In this session we discussed:

• Challenges the industry is facing
• How to develop an effective approach to reputational risk management
• How to build a strategy for your business

Speakers

• Alex Ainley
• Andrew Williams
• Robert Allen
• Mandy Perry

Key takeaways from the session

Top tips to consider when you have a crisis management plan:

• Make sure you have one, test it and ensure it's regularly reviewed.
• Ensure care over all external and internal communications - remember anything could end up in the public domain.
• Be clear about what you are doing and why - to employees, customers, shareholders, the world - and ensure Systems are in place for Governance & Culture to shine.

Our international panel of funds, tax and pensions experts discussed the latest EU and UK developments in terms of structures and products facilitating access to illiquid/less assets. Covering topics such as the new LTAF and ELTIF structures as well as pensions regulation, tax and “marketability”, this session gave an overview of recent initiatives in this rapidly growing area.

Speakers

• David Williams
• John Dooley
• Danny Tsang
• Martin Shah
• Marcela Moraru

Key takeaways from the session

• Democratisation of private assets is high on the agenda, with many managers planning to launch new investment vehicles in the next 12 months.
• One of the biggest talking points in the UK has been the introduction of the LTAF regime, whilst in Europe the ELTIF regime is also being revamped.
• There are tax implications that investors must consider when structuring for private assets. Another proposed UK vehicle is the Reserved Investor Fund, which may also offer tax advantages to investors competing with existing overseas vehicles such as the JPUT.

Examining the emerging legal, regulatory and best practice approaches to managing non-financial misconduct, this session reflected on the regulatory, employment and disputes risks and covered practical tips and common pitfalls based on recent experience and market events.

Speakers

• Emma Sutcliffe
• Amy Sumaria
• Cathryn Bean

Key takeaways from the session

This session covered the background of regulators overseeing non-financial misconduct. The discussion focused on the FCA's consultation paper 'Diversity and inclusion in the financial sector – working together to drive change', which requires responses by 18 December 2023.

The new guidance will apply to all regulated firms, regardless of size, and will amend rules related to threshold condition, fitness and propriety, regulatory references, and conduct rules. There were concerns about potential challenges and the need for clarity in certain areas of the proposed guidance.

An anonymous poll revealed that almost 80% of the audience believed the guidance needed amending before implementation, and 63% were unsure about applying the proposed guidance before it is implemented.

What next for sustainability legislation?

Our UK and European regulatory panel provided an oversight on a number of potential developments and regulations outlining what is next for sustainability legislation. They discussed potential developments that are in the pipeline within sustainability regulation, the timeline for implementation of the UK’s SDR, achievements of Europe SFDR and what is next, and the prospects for a UK green taxonomy and how closely it would align with the EU taxonomy.

Speakers

• Catherine Weeks
• Augustin de Longeaux
• Louise Tudor-Edwards
• Harald Glander

Key takeaways from the session

EU SFDR

There’s a wave of further change coming for firms caught by SFDR. In the medium term, SFDR 1.5 will introduce some significant changes to the technical standards, including new PAIs, new decarbonisation disclosures, and a new pre-contractual disclosure “dashboard”. Longer-term, the EU is consulting on what’s likely to become SFDR 2.0, with a potential re-framing of the article 8/9 regime into express product labels.

UK SDR

The UK FCA has pushed back the policy statement until Q4, having received an unprecedented volume of feedback from the industry on 2022’s consultation. But, when the rules do arrive, they will likely represent a fundamental reshaping of the ESG regulatory landscape in the UK. This will include opt-in product labels, mandatory firm-level and product-level disclosures, and a new anti-greenwashing rule.

The Consumer Duty is now in force, firms will have achieved substantive compliance, and we are looking to ‘Day 2’ action plans. But what does Day 2 mean for firms?

In this session we explored what firms should have in place, what they should be looking to action now, and where the FCA expects firms to focus as part of the BAU. We also reflected on learnings from Consumer Duty implementation and drew out comparisons that will help firms planning ahead for the efficient implementation of the EU Retail Investment Strategy. We also shared our views on the likely focus of future supervisory and enforcement actions.

Speakers

• Penny Miller
• Caroline Hunter-Yeats

Key takeaways from the session

What is the key focus for firms for Consumer Duty Day 2?

Although the dust has settled post-implementation of the Consumer Duty, work remains on closed book products and services (for some firms); and moreover, we are beginning to see the emergence of a broad, post-implementation supervisory focus on the Consumer Duty, over the coming months, and beyond.

Firms needing to meet the 31 July 2024 deadline for closed products could consider carrying out an initial review first; prioritising review of products or services with a higher risk of consumer harm; incorporating a review of the elements of the Duty into existing and ongoing review cycles, and/or grouping similar products and services together for review.

All Firms should ensure their governance arrangements continue to effectively embed and test the Consumer Duty, post-implementation. This could take a variety of forms including:

• Assurance. How can a firm enhance compliance with the Duty within its organisation? If you are a senior manager, are your steps “reasonable”?

• Boards/committees. How well are these working in practice – are policies/procedures being followed, how are the data dashboards working/looking, what is the quality of analysis and challenge?

• Consumer Duty Champions. Any post-implementation issues encountered/are resolutions being swiftly, and effectively, achieved?

Do you have any insights on best practice from working with firms on implementation?

Our UK Financial Services Regulatory team are continuously updating our Consumer Duty implementation services offering and you can find more information as well as Consumer Duty resources on our feature page here.

We discussed key updates on the new US Private Fund Adviser Rules and their impact on non-US managers. Our market leading hedge funds team were joined by Patricia A Poglinco and Joe Morrissey from Seward & Kissel in New York.

Speakers

• Devarshi Saksena
• Patricia A Poglinco, Seward & Kissel
• Kevin Cassidy, Seward & Kissel
• Joe Morrissey, Seward & Kissel

This panel discussed the economic challenges driving FI disputes, key cases in the Commercial Court in the next 12 months and the practical steps clients should be taking to mitigate the risks.

Speakers

• Elizabeth Williams
• Richard Blann, Head of Group Litigation & Conduct Investigations Legal, Lloyds Banking Group- Ben MacDonald, Head of Group Legal, Rothschild & Co
• Louise Trayhurn, Executive Director, Legis Finance
• Jane Croft, Law Courts Correspondent, Financial Times

Key takeaways from the session

This panel discussed the categories of claim/dispute financial institutions have dealt with over the last 12 months and what we expect to see over the next 12 months.

Discussions around macro-economic drivers have given rise to corporate disputes in 2023 and we have seen specific themes emerging.

During this session our UK and European regulatory panel discussed the UK’s departure from the EU, the key priorities for the UK and EU regulators going forward and the subsequent regulatory divergence which is set to increase the complexity and cost of compliance programmes for asset managers operating on a global scale. There was a particular focus on the key areas of regulatory divergence as a result of the Edinburgh Reforms, the implications for UK and EU asset managers from a competitiveness standpoint and assessing whether diverging regulation could create systemic risk.

Speakers

• Louise Tudor-Edwards
• Iris Dingemans
• Harald Glander
• Augustin de Longeaux
• Catherine Weeks

In this panel discussion we explored:

• The changing nature of cryptoassets as an investment asset class
• How distributed ledger technology is set to reshape the financial markets
• Remaining roadblocks and the journey ahead

Speakers

• Paul Browne
• Oliver Ward
• Sarah Crabb
• Rosali Pretorius

Key takeaways from the session

Cryptoassets and crypto-linked products continue to be popular, and the marketplace in crypto continues to mature (particularly in the funds and exchange-traded products space).

Distributed ledger technology is being deployed in a wide range of financial markets settings, and has the potential to transform the way the financial markets operate in the future.

Our audience was less bullish about the crypto markets going forward than is commonly reported in the press, and see at best a medium term timeline for widespread adoption of Web3 technologies in financial markets

The good news: DE&I is firmly on the agenda for most firms, and progress is being made. How do we ensure meaningful change and keep up the momentum?

During this session we discussed the current backdrop of DE&I, what firms are doing well and explore practical and pro-active steps firms can take now to move the dial:

• What does good look like? Can or should we have a standard measure across the industry?
• How can firms take a more holistic approach to DE&I in their business?
• Can firms balance tensions in global expectations?
• How to respond to the evolving regulatory landscape
• Options for practical progress

Speakers

• Dan Ornstein
• Amy Sumaria
• Mandy Kirby, Co-CEO, City Hive

Key takeaways from the session

You should do DEI because…

• It’s a regulatory requirement
• Our clients demand it
• It’s something we want to do - this option is the hardest to execute but arguably creates the greatest sustainable impact #culturechange

How to anticipate and mitigate the legal risks involved in deploying emerging technologies in your business. A discussion of themes arising in tech frontier disputes, from contractual pitfalls to regulatory red flags.

Speakers

• Minesh Tanna
• Douglas Robinson
• Jayne Bentham
• Alex Brown

Key takeaways from the session

• Rapid development and lack of understanding in emerging technologies will give rise to litigation and enforcement risks.
• Identifying the reasons why disputes arise in the context of emerging tech.
• Gaining insights on some of the challenges in dealing with disputes which relate to innovative technologies.

Join us as our hedge fund partners discuss key hedge fund updates and market trends including evolving fund structures, investment terms and the latest on AIFMD 2.

Speakers

• Devarshi Saksena
• Lucian Firth
• Sarah Crabb
• Tom Pointer
• Niamh Ryan

Key takeaways from the session

• Fee Structures - Hedge funds are introducing a raft of new fees, reversing downward pressure on their '2 and 20' charging structures. In an investment industry where the shift is to lower cost and greater accessibility, many hedge funds are doing exactly the opposite — higher fees, longer lockups, and restricting access
• The War for Talent isn’t as straightforward as before.. As flexible working models are embraced in the financial services sector and beyond, compensation is no longer the only type of ammunition firms can count on to attract and hold on to prized workers. Non-financial benefits are taking the spotlight as managers retain top talent by promoting better work-life balance
• Regulation has historically been perceived as a burden to hedge funds due to the difficulty for firms of varying sizes to implement the same legislation into their funds. The burden can be immense for smaller firms who might need to outsource all their compliance requirements, but must still ensure the accuracy of the information.
• Co-investment – lots more appetite amongst managers and investors for strategic co-investment, structures and fee models differ depending on the asset and the investor-manager dynamic.
• Pass through model – continuing interest amongst established managers (especially for multi manager/multi strategy managers and some start-ups) – but present legal and operational complexity in implementation and operating the model including investor disclosure and regulator expectations
• Fund domiciles – Vast majority of funds still launching in Cayman; but more interest in Lux funds for private credit strategies and Jersey for digital assets strategies