Funds Focus | April 2021

Written on 16 Apr 2021

Welcome to the latest edition of our Funds Focus

 

The UK asset management industry has faced a number of geopolitical events over the last year or so: the Covid-19 pandemic, the extensive preparation for the end of the Brexit transition period and, in addition to this, there has been significant legislative and policy reforms around sustainable investing, outsourcing, the digital economy and HM Treasury's review of the UK funds regime (to name but a few).

The Covid-19 pandemic and the global focus on climate change is fundamentally changing client needs within the industry. The result is that firms are beginning to look beyond profit and are taking a more holistic view of their purpose, strategy and how they contribute to society. Coupled with the growing regulatory scrutiny across the sector, fund managers need to be prepared to answer difficult questions from the regulator on issues such as their culture and purpose, including diversity and inclusion. Flowing from this greater focus on 'impact adjusted profits' comes the issue of reporting, and the cost of complying with regulations such as the Sustainable Finance Disclosure Regulation (SFDR) is something that fud managers will be looking to manage.

In this edition of Funds Focus, we drill down into these themes in more detail. We look at what UK fund managers who market into the EU need to be doing now to meet future milestones under the SFDR. We also consider the Financial Conduct Authority's (FCA) latest communications around culture and governance and its supervisory priorities. Embedded within the overlapping concepts of culture and environmental, social and governance is the issue of diversity and inclusion. This has been the topic of two recent FCA speeches and industry guidance. In our Insight, we look at how the FCA's regulatory expectations translate into practical steps fund managers can take to stay ahead of the curve. In our final article we flag important changes coming down the regulatory pipeline of which fund managers should be aware.

The next steps towards SFDR alignment

For a regulation criticised for lacking clarity and detail, the Sustainable Finance Disclosure Regulation has generated a great deal of information for fund managers to digest. Managers in scope of the regulation should be working on their alignment roadmap and taking steps now that will ease compliance with future deadlines. In this Insight we look at what UK fund managers who market into Europe should be focussing on now and in advance of the draft regulatory technical standards coming into force next year.

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Financial Conduct Authority entrenches 'culture' at centre of regulatory supervision

As firms continue to adapt to changed working practices as a result of the Covid-19 pandemic, and deal with the potential effects of working from home on workplace culture in the broadest sense, the FCA is likely to continue its focus on culture and its key drivers. Firms are encouraged to revisit and articulate their core purpose, ensure that this is understood throughout the business, encourage diversity of perspectives and experience, and consider how management information can be used to inform a firm's assessment of its culture on an ongoing basis.

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What does diversity and inclusion mean for investment fund managers?

The benefits of having a diverse pool of talent in the workplace are well proven. The lack of diversity has been identified as the main contributing factor to a number of past financial scandals. That being the case, why are so many firms, particularly those operating within the financial services sector, struggling to cultivate a consistently inclusive culture? In this Insight, we look at what diversity and inclusion means for the investment funds industry, consider the FCA's latest thoughts on how it might regulate the issue, and what steps fund managers should consider taking to get ahead of the curve.

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What's coming down the pipeline?

Despite the tumultuous year we’ve just had, the investment fund industry has shown tremendous resilience. We are seeing a number of the key trends of 2020 accelerating, as issues such as sustainability, the use of technology, and culture and diversity attract the attention of governments, regulators, fund managers and investors on a global scale. For UK fund managers marketing into Europe, 2021 will see a number of significant regulatory changes take effect. As the UK finds its feet outside of the EU and seeks to rebuild from the Covid-19 pandemic, 2021 will also be a year of reform.

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