In the latest of our parent company Global Relay’s regular hedge fund compliance roundtables in London, senior figures from across the sector gathered to exchange opinion on some of the pressing issues of the moment.

Confusion persists over Consumer Duty, how it applies and to whom. Attendees revealed much frustration with the lack of clarity over definitions, and there was extensive discussion on the specific issue of what constitutes a management company and a manufacturer.

Is the manufacturer the entity that makes the decisions on how a product is structured, and how far – if at all – does this differ from decisions on fees, strategy and investment philosophy that would reasonably be defined as the responsibility of the management company. It’s clear there is uncertainty about responsibility, particularly where operations are run between multiple national jurisdictions. However, a number of those present seemed convinced that if any of the functions seen as management company functions are carried out by persons in the UK, then the product would come under scope for consumer duty compliance.

As the clock ticks down towards deadline, it’s worrying that there is such a lack of clarity.

Corporate Sustainability Due Diligence Directive (CSDDD)

More pain is being felt as the industry struggles to get to grips which what’s being dubbed CS Triple D, the EU legislation that states its aim is to “foster sustainable and responsible corporate behaviour and to anchor human rights and environmental considerations in companies’ operations and corporate governance”.

It’s a principle few wouldn’t want to sign up to but, as always, it’s the practice that becomes complicated. The Directive requires due diligence to be carried out on all funds, whether sustainable or not, and that generates a huge amount of work for what appears to offer no apparent benefit. Investors that want to get into arms manufacture or fossil fuel extraction, for example, aren’t going to be looking for due diligence reports on the effects of the investments.

Once again, lack of prescription was something that is driving frustration, and the word ‘farce’ was used to describe the situation until proper definitions were adopted.

The sense was that, on ESG matters across the board, there is a lot going on, a lot to cover across all firm types but with a general lack of resources and talent to address it.

Whistleblowing

During an interesting exchange of views on how whistleblowing policies worked, the point was made that the differences in how this was dealt with in the US and the UK were still largely unrecognised.

For instance, the incentives to whistleblow in the US are far greater because of financial reward. That’s not the case in the UK, but where there is a similarity between the countries is that blowing the whistle almost certainly means you’ll never work in that industry again.

That can cause problems in circumstances where a whistleblowing process for a business headquartered in the US but with an operation in the UK manages its whistleblowing procedures from the US.

Edinburgh Reforms (UK regulation)

Intranational relations came up again in the discussion on the so-called Edinburgh Reforms and in particular what came next for Senior Managers and Certification Regime (SMCR) and any proposed Asset Managers regime.

The general feeling in the session was that the initial hype about ‘taking advantage of freedoms’ once the UK left the EU had died down and there would be no major unbundling. But lobbying was going on particularly to make the market less complex in the UK than it is in the US, thereby increasing UK competitiveness.

For firms operating in the EU and the UK, replacing EU law with UK law simply meant extra paperwork and extra complexity, not replacing one with another. Currently the fear of compliance folks is that by creating unique regulation in the UK, entities will simply have double the compliance burden. But there was some appetite for simplification, leading to some debate about the desirable boundaries of legislation.

While it was felt unlikely, for example, that the SMCR would be scrapped, especially as any new financial scandal could be immediately attributed to it, would an examination of the difference it made compared to looser requirements in the US reveal any great divergence? And would codes of conduct be a better way of achieving good governance than certification requirements?