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BlackRock has been awarded its first Renminbi Qualified Foreign Institutional Investor (RQFII) licence by the China Securities Regulatory Commission (CSRC) - An index joint venture between FTSE Group and Canada’s TMX Group has acquired the indices business of MTS, a European electronic fixed income trading business owned by the London Stock Exchange - The European leveraged finance market is set to undergo a shift this year, as private equity sponsors veer back towards loans to finance leveraged buyouts, says S&P Capital IQ - Turkish corporates are the most exposed among EMEA emerging markets to a scenario of slowing growth, rising interest rates and a persistently weak local currency, according to Fitch Ratings - London-based Global Markets Exchange Group (GMEX) is in talks to acquire an equity stake in ALTX Africa Group, a new exchange operator focusing on East Africa - Alternative asset managers with expertise in high-yield fixed income and distressed assets are upping their investments in the peer-to-peer loan market, according to a new report from Cerulli Associates.

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Regulatory Update

Management in the bull’s eye

Tuesday, 23 July 2013 Written by 
Management in the bull’s eye Today, managers are operating in a world of changing expectations. They are expected to do more to ensure that employees act appropriately and that fund and firm governance are firmly grounded. For those who miss the mark, the personal consequences can be serious. http://www.ftseglobalmarkets.com/

Today, managers are operating in a world of changing expectations. They are expected to do more to ensure that employees act appropriately and that fund and firm governance are firmly grounded. For those who miss the mark, the personal consequences can be serious.

The UK, at the forefront recently in defining expectations of management, this week established greater personal responsibility for senior bankers—including criminal liability for "reckless misconduct” and a burden of proof that will hold senior bank officers accountable "unless they can demonstrate that they took all reasonable steps" to prevent misconduct. The possibility of extending these provisions to other sectors of the financial services industry is explicitly discussed in the directive. Over time, the forces moving the banking industry in this direction will likely affect the alternatives space as well.
 
In the US, the SEC has openly stressed that senior management will be held responsible for creating, managing and maintaining an effective control environment. A conference for senior management was held in February 2012 precisely to drive this point home. And, senior staff frequently emphasize the point in speeches. Most recently, Drew Bowden, the Director of the SEC’s Office of Compliance Inspections and Examinations, reiterated the message and told investors that a portfolio manager who dominates his firm “in the old style” is a “warning indicator” to the SEC. (Other “warning indicators” include a lack of an adequate process for the investment and risk management functions.)
 
The CFTC's actions against Jon Corzine, former CEO of MF Global, epitomize the shift. According to the CFTC, Corzine's behavior led employees to dip into segregated customer accounts. Echoing the spirit of the CFTC's actions, there are calls in the press for personal liability for officers when lower-level employees violate segregation laws. And Senator Elizabeth Warren recently questioned the Federal Reserve, the Treasury, the FDIC and the Office of the Comptroller of the Currency about why they were settling so frequently with those who may have broken the law. 
 
In today’s environment, senior management may be well advised to revisit governance issues. Clarity about rules and expectations is necessary—both internally at their firms and at the funds they manage. Based on what investors are saying, managers with first-class infrastructures might even enjoy a marketing boost. A recent survey by the Cayman Islands Monetary Authority notes that a majority of the investors are not satisfied with the status quo in corporate governance. 

Deborah Prutzman

Deborah Prutzman is the founder and CEO of The Regulatory Fundamentals Group (RFG), a New York-based firm that designs and implements business and risk solutions for alternative asset managers and institutional investors. RFG's senior-led team employs a robust suite of tools, including practical alerts on new and potential industry developments and its powerful RFG Pathfinder® knowledge management platform which simplifies the challenges of operating in a regulated environment.  To learn more about The Regulatory Fundamentals Group call (212) 537-4058, email a representative at Information@RegFG.com or visit RegFG.com

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