Friday 19th September 2014
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FRIDAY SEPTEMBER 19th TICKER: Scotland has decided to stay in the United Kingdom after voters rejected independence, easing investor uncertainty around UK stocks, gilts, and the country’s use of GBP. The bid for independence failed by a margin of 10%, with the results in from all 32 council areas, the ‘No’ side won with 2,001,926 votes over 1,617,989 for ‘Yes’ - Confidence at India’s largest companies hit a record high in September, as firms reported an easing in inflationary pressures and improved credit availability. The MNI India Business Indicator, calculated from responses from BSE listed companies, rose by 2.8 points to 71.2 in September from 68.4 in August - Italy is struggling to emerge from a balance sheet recession, according to the International Monetary Fund (IMF), although business surveys and resilient exports suggest a gradual increase in economic activity in coming quarters - Data from analytics provider eVestment shows total assets in hedge funds increased 1.6% in August to $3.068trn, overtaking the all-time peak level set prior to July’s slight decline.

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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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