Amendments to the regulatory regime for dark pool operators in Hong Kong

On 15 May 2015, the Securities and Futures Commission (SFC) published its consultation conclusions concerning the regulation in Hong Kong of dark pools, largely adopting the recommendations set out in its February 2014 consultation paper.  Dark pools (also known as alternative liquidity pools or ALPs) are electronic trading systems through which the crossing / matching of orders involving listed or exchange traded securities is conducted with no pre-trade transparency. Continue reading

Some positive FCA feedback on conflicts of interest for Wealth Management firms

In welcome news for the industry, the FCA in late November 2014 expressed pleasure in reporting generally positive findings from its thematic review assessing whether wealth management firms and private banks identify and manage conflicts of interest that might arise when providing investment products manufactured within the same group/firm (in-house products – “IHPs”). Continue reading

USA: Delaware Chancery Court finds bank’s “unclean hands” bar contribution from co-defendants, orders payment of $76 million damages

On October 10, Vice Chancellor J. Travis Laster of the Delaware Chancery Court issued an opinion ordering RBC Capital Markets LLC (“the Bank”) to pay USD $75.8 million of a $91.3 million damages award to a class of former Rural/Metro Corp. shareholders.  The damages opinion was preceded by the court’s finding in March that the Bank, along with Rural/Metro’s directors, and their other financial advisor Moelis & Co. LLC, were liable for breaches of their respective duties in connection with the sale of the company to Warburg Pincus LLC.  The Bank was found to have deliberately undervalued the company, advising the board to accept Warburg’s offer, without disclosing that it was simultaneously seeking to finance Warburg’s takeover. Continue reading

EU: MiFID Review – phase two begins

The European Securities and Markets Authority (ESMA) is consulting on the implementation of the revised Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR).  MiFID II and MiFIR are expected to come into application by end 2016/early 2017, and will apply across the European Union, extending also to member states of the European Economic Area under the European Economic Area Agreement.    For a more detailed briefing, click here.

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RDR in practice: FCA concerns that inducements may be undermining RDR objectives (Thematic Review and Guidance Consultation13/5)

The FCA has published findings from its recent thematic review into payments (and other benefits) by life insurers to advisory firms, which highlights the FCA’s serious concerns over payments (and other benefits) in service or distribution agreements that it considers may undermine the objectives of the Retail Distribution Review (RDR) by influencing distribution of retail investment products.  These findings are relevant to all providers and distributors of retail investment products, not just the life industry.

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Further enforcement action by UK FCA in relation to suitability issues in wealth management

The UK’s Financial Conduct Authority (FCA) has imposed a £1,802,200 fine on AXA Wealth Services Ltd (AXA) for failing to ensure the investment advice given to its customers was suitable, and putting customers at risk of buying unsuitable products.  The case is interesting not just because it provides some elaboration on existing guidance on suitability, but also because the FCA examined the adequacy of controls over sales incentives to ensure that advisers did not make unsuitable recommendations or seek to sell unwanted products.

Interestingly, the FCA highlights the fact that the investment funds underlying the products recommended to customers were predominantly managed by members of the AXA Group, although the FCA does not directly criticise the bancassurance model, nor is there any overt suggestion that potential conflicts of interest were not adequately managed (other than the inadequacy of controls over sales incentives).  The fine is however based on a percentage of AXA’s total revenue from sales of investment products during the relevant period. Continue reading

UK: FCA provisional decision to fine and ban former NED of financial firm for failing to disclose conflicts of interest

The FCA has published a notice of its decision to fine a former non-executive director (NED) of two mutual societies £154,800, and to ban her from performing any role in regulated financial services.   The FCA considers that she breached the requirement to act with integrity by recklessly, and in breach of her fiduciary position as a NED, failing to recognise and disclose conflicts of interest.   The findings are contested, and have been referred to the Upper Tribunal (the Tribunal), but an application for orders to prevent publication of the Decision Notice and of particulars of the reference in the Tribunal’s register was unsuccessful.

Boards of financial firms should take note that the case squarely raises conflicts identification and management and basic corporate governance as priority issues:

“The position of NEDs is critical to the effective functioning of a board and to maintaining the confidence of customers. Because of the nature of their role, NEDs are more likely to have a portfolio of appointments and are likely to find themselves having to manage conflicts of interest more frequently than their fellow directors. NEDs need to manage scrupulously their conflicts of interest and to observe basic corporate governance principles.” Continue reading

UK: the FCA’s thematic review of insurance claims processes

In a speech on the growth of UK insurance entitled “Meeting the growth challenge”, Martin Wheatley, Chief Executive of the Financial Conduct Authority (FCA), announced the launch of a thematic review of the claims process in the insurance market.  Although this review will have a particular focus on travel and household claims, it will look at themes more widely across the market.  The findings and final recommendations of the review are expected to be published by the final quarter of 2013. Continue reading