Tuesday 22nd July 2014
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The value of assets managed by Islamic funds grew by 4.9% and reached $75.1bn in the first six months of 2014 (a record apparently). According to a report released by Kuwait Finance House (KFH) Islamic finance assets around the globe – including also those not managed by dedicated Islamic funds – reached $1.8trn by the end of 2013 and should surpass $2trn in the third quarter of this year. The number of Islamic funds grew from just over 800 in 2008 to 1.069 as of June 17th this year says KFH with Saudi Arabia and Malaysia holding more than 60%% of Islamic fund assets worldwide. The report says equities continue to dominate the portfolios of Islamic asset managers, accounting for 44% of the total; approximately 16% of the assets are invested in low-risk money market instruments. Investments in real estate, however, make up only a small portion of total and are made mostly by funds specialised in the Gulf Cooperation Council (GCC) and Malaysia real estate. The GCC is comprised of Saudi Arabia, Bahrain, Qatar, Emirates, Kuwait and Oman - Catella has secured the approval of the Swedish Financial Supervisory Authority (Finansinspektionen) and has taken up the shares in Informed Portfolio Management (IPM) in a deal originally agreed in January 2014 worth SEK25.7m and an additional consideration related to IPM’s performance. Catella’s ownership of IPM now amounts to approximately 51% (up from 25% previously) - Venture capital interest in payment industry start-ups appears to be on the wane. According to data from CrunchBase, the number of venture-backed payments companies has declined from a high of 59 start-ups in the third quarter of 2013 to just 41 in the second quarter of 2014. The reason? High start-up costs which make the going hard for new firms. Most of the big success stories in the sector come from companies that piggy-back off the existing firms and platforms, such as Square's mPOS dongle, or utilise new techniques in crowdfunding and P2P lending to gain an edge over established players. Even so, Square, with its multi-billion dollar valuation, has yet to make a profit - The Hong Kong Deposit Protection Board has published its Annual Report for 2013-2014. Total deposits covered by the DPS increased to HK$1,637bn, with 90% depositors fully covered by the DPS protection limit at HK$500,000. The agency says it has enhanced deposit information submission requirements for scheme members and strengthened contingency arrangements and early warning mechanisms for responding to different crisis scenarios – Oman’s non-oil exports (including re-exports) have grown to OMR3.81bn last year from OMR79m in 1991, according to the Export Credit Guarantee Agency of Oman (ECGA). The agency reports it has received approval from the Ministry of Finance to provide medium and long term cover, investment guarantee as well guarantee on bonds as such approved products are extended by many other ECAs in other countries.

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Regulatory Update

Protect Your Firm... And Your Personal Assets!

Monday, 30 July 2012 Written by 
Protect Your Firm... And Your Personal Assets! Hoping for a respite from regulatory change?  Think again.  Gathering forces may create a regulatory storm that is even more difficult than the one faced in the 2007-2009 financial crisis.  In this tempest, both the regulated and the regulators will have bull’s-eyes on their backs.  Regulators are likely to become more conservative in their analysis and more active.  It is therefore imperative to assess your firm now and prepare yourself to withstand regulatory inquiries.  You can also expect more scrutiny from investors who will seek to allocate funds only to those firms that they believe are fully complying with applicable laws and regulations. http://www.ftseglobalmarkets.com/

Hoping for a respite from regulatory change?  Think again.  Gathering forces may create a regulatory storm that is even more difficult than the one faced in the 2007-2009 financial crisis.  In this tempest, both the regulated and the regulators will have bull’s-eyes on their backs.  Regulators are likely to become more conservative in their analysis and more active.  It is therefore imperative to assess your firm now and prepare yourself to withstand regulatory inquiries.  You can also expect more scrutiny from investors who will seek to allocate funds only to those firms that they believe are fully complying with applicable laws and regulations.

What fuels this gathering storm?  Outright major misappropriations by the likes of Madoff and Peregrine's Wasendorf are part of the equation.  In addition, events such as the LIBOR-fixing scandal at Barclays, J.P. Morgan’s “London Whale” trading losses, and MF Global’s failure to segregate customer funds serve as cautionary examples.

These stories highlight that a firm’s assets, reputation, and in some cases, even the firm’s fundamental viability are at stake when things go awry.  As if that weren’t bad enough, senior executives face additional consequences.  In these and other similar incidents, personal assets can be at stake even when others are the primary wrongdoers.  

Think you are immune from these risks?  Think again.  Labaton Sucharow LLP, a plaintiff's law firm, recently published a unsettling study indicating that one in four financial industry professionals in the U.S. and U.K. believe wrongdoing is necessary for success.  If this study is credible, the message it sends to the general public is highly negative.  It speaks to senior management of alternative investment firms loud and clear: sometimes the best-intentioned executive may have an employee who hears an "unintended message" and veers off course.  Intended or not, the executive may ultimately bear responsibility. 

The first line of defense for an investment advisory firm and its executives is to build a culture in which the firm’s standards clearly and consistently meet all applicable regulatory and ethical expectations.  It is particularly important for firm leaders to reaffirm these standards and expectations during times of economic and operational stress, when legal and internal requirements may appear to conflict with business drivers (such as maximizing short-term results).  Employees must internalize that senior management will take the ethical route in order to maximize the long-term value of the firm—and expects them to do the same.

The second line of defense, at least in the U.S., is to develop a governance structure that satisfies the requirements specified in the U.S. Attorneys’ Manual.  This manual offers incentives to companies that adopt a comprehensive compliance and ethics program (and take certain actions upon the occurrence of alleged missteps).  A program that satisfies these requirements will contain elements in addition to those required by the SEC and CFTC.  Complying with the U.S. Attorneys’ Manual can be an invaluable safeguard that reduces the likelihood of an executive or his firm being charged with criminal violations.

The third line of defense is to undertake an honest self-assessment, and to consider the types of pressures that senior management and employees will encounter should the weakened state of the global economy continue.  Topics in the regulatory spotlight should be included in this assessment.  The intent here is to prepare for the possible pressures employees and senior management might face, thereby reducing the chance that hasty decisions are made in the heat of the moment. Ill-considered actions can carry serious penalties and act as a lightning rod for litigation by regulators, investors, and other third parties (such as credit providers).  Advance preparation will help your staff make faster and better decisions if the need should arise. 

You can't always remove that bull’s-eye on your back, but you can at least make the target less bright.

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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