The regular roundtables hosted by compliant electronic communications provider Global Relay (our parent company) have proved a valuable forum for compliance practitioners to discuss how regulatory changes are being dealt with in the front line. February’s event was one of the best attended yet, with discussion kicking off between the 15 hedge fund CCOs present around challenges related to the Consumer Duty obligation. With around five months left until implementation, confusion persists: it’s a “heavy, heavy lift”.

The trickiest part, said one attendee, is the value assessment. Many are comparing themselves with peers and competitors, or leveraging from Authorised Corporate Directors (ACDs) to see what’s needed.

Consumer Duty

Trustees of occupation pension schemes have been causing issues for firms who thought they had the new Consumer Duty under control. One firm in particular deals solely with professionals, but has the trustee of an occupational pension scheme as an investor within a fund. According to the IA, this investor is considered as “retail” and, as such, the firm has had to do another assessment despite previously thinking it was out of scope.

The question, it seems, will come down to materiality; if you’re not a manufacturer, you don’t market the product, and aren’t able to influence the pension scheme, then the trustee may not pose a problem. The IA has apparently been useful in answering difficult questions, and industry focus groups are similarly becoming important resources for those with questions.

Edinburgh Reforms

The group had mixed opinions of the government’s “Big Bang 2.0” reforms to financial services, ranging from uncertainty to opportunity. The consensus was that the reforms contain a degree of speculation, which could change with future governmental changes. With that in mind, many are holding off on any action and waiting for the consultation paper to be published.

On the other hand, some attendees had been present at a roundtable with the FCA and HM Treasury who both appear to be open to hearing and responding to feedback, especially around proposed changes to short-selling rules. For some attendees, the Edinburgh Reforms pose an opportunity to voice and potentially change things that they are not happy with. One attendee said, “if we can put forward evidence or reasonable arguments for change, then there’s a high probability that it will be looked at and potentially debated.”

In particular, the group would like to see the FCA and government looking at listed corporates to see whether they can pull together a repository for third sector organisation values. The availability of this data, they said, should be centralised.

FCA visits and enforcement

Looking at the FCA more generally, it was agreed that now might be a good time to take stock of risk management as the regulator appears to be focused on operational risk, in particular.

Some of the group are actually hoping to see more enforcement activity from the UK regulator, akin to that delivered by the SEC or FINRA. The FCA, they said, is issuing large, criminal enforcement action but is yet to set a precedent for lower-level instances of bad behaviour, which are often seen as good motivators for more compliance.

While very few have had visits from the FCA recently, many in the room are expectant of an FCA knock on the door in the next year. Looking back at the cadence of FCA inspections in the last 10 years, the FCA were inspecting in 2014 and 2018. It is likely that the regulator was then waylaid by the pandemic. A number of attendees were of the opinion that the FCA may hone in on market abuse, surveillance, and eComms. Especially if Market Watch 59 is anything to go by.

ChatGPT

The hype around ChatGPT has been unwavering since its November 2022 launch and the compliance folks are catching up. A number of attendees are treating the AI chatbot as they would any other technology and restricting its use until it has approval from the IT team. Some are concerned that the new technology may quickly be picked up by staff as a means of streamlining their day jobs – especially by quants for the potential creation of models. Until more is known, restriction seems to be the favoured route.

Once again, the compliance practitioners came back to the ongoing challenges around recordkeeping and retention for fast-developing communication methods. As with ChatGPT, many are banning new channels, such as WhatsApp, in a bid to prevent staff from messaging on unmonitored channels.

One attendee has sought legal advice on this topic and was told that banning is not practical, and that more proof is needed, whether it’s screenshots provided manually to complete records or attestations from staff that they are not using it. One attendee said that, when asked to sign an attestation that they were not using off-channel communications, employees often said they were unable to sign.