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Digital Subscriptions > The Hedge Fund Journal > Issue 139 – Mar 2019 > In Principle: 10 Things Authorised Firms Need To Know For 2019

In Principle: 10 Things Authorised Firms Need To Know For 2019

Part 1 - From Brexit to cybersecurity and data protection

Introduction

In the 2018 edition of this publication, we ended the introduction with the line, “We can only hope that we will enter 2019 with greater certainty than 2018 as to how the regulatory landscape will look.” Unfortunately, certainty still remains in rather short supply. With Brexit now (at least in theory) a matter of weeks away, it remains unclear what will happen: the government’s original proposed Withdrawal Agreement has been decisively rejected, but Parliament has indicated that it would support that agreement if the “Irish Backstop” provisions are renegotiated. The Prime Minister has therefore been mandated to return to negotiations on this point, in the face of statements by European Union leaders that there is no prospect of such negotiations going ahead. At the same time, Parliament has signalled that it “rejects” a no-deal Brexit, but not agreed to a proposal which would have made this rejection binding. Further Parliamentary proceedings are now planned for the middle of February. Whether there is a hard, soft or no Brexit, there remain a number of issues beyond Brexit that authorised firms will have to consider in the year ahead. Including Brexit, here are 10 things that authorised firms need to know for 2019.

Executive Summary

1. Brexit

In the absence of a decision of what will happen come the 29 March 2019 (or indeed, come some future date if “exit day” is postponed”), firms have been left in a state of uncertainty. Whilst this makes planning for what will happen even more difficult, it is possible to plot out how certain more likely scenarios would play out. We consider what asset managers would face if the original Withdrawal Agreement is largely accepted (notwithstanding a change to the Irish backstop), what would happen in the event of the UK leaving the EU without an agreement, and what effect the UK’s remaining in a customs union with the EU would have on asset managers. We also consider what preparations the FCA has made for a no-deal scenario, in particular surrounding the “temporary permissions regime”.

2. The Extension of the Senior Managers and Certification Regime

The Senior Managers and Certification Regime (SMCR), which is currently in force for all banks, building societies, credit unions, and dual regulated investment and insurance firms, will be extended to cover all FCA solo-authorised firms by 9 December 2019. While the Financial Conduct Authority (FCA) will continue to approve people who take on Senior Manager roles, the obligation to certify employees below Senior Manager level as fit and proper will devolve on the firms themselves. Firms will also be required to train staff on the Conduct Rules and implement new or update existing systems and controls, including a variety of policies and procedures. Although the implementation is almost a year away, firms would be well advised to have the new requirements at the forefront of their minds to ensure a smooth transition.

3. Market Abuse

Market abuse continues to be an area of very significant interest for the FCA and growing interest across the rest of the EU. With the FCA’s insight that compliance with the Market Abuse Regulation (MAR) is “state of mind” rather than a matter of following procedures, firms will have to be particularly vigilant to ensure that they remain compliant.

4. The FCA’s Recent Enforcement Trends

Until the end of 2018, the FCA had a comparatively quiet year, at least in terms of the number of investigations publicly brought to a conclusion and the consequent number of fines issued. The number of penalties was down, and the length of investigations was increasing substantially. We have looked at the number and distribution of investigations and decision notices to put together a picture of the FCA’s current enforcement trends.

5. Cybersecurity and Data Protection

2018 was an important year for data protection law with the entry into force of the General Data Protection Regulation (GDPR) in May. We expect to see a trickle of enforcement cases in 2019 under the new regime as the courts and tribunals interpret the new law’s provisions. Especially with the greatly increased size of the penalties available for breaches, firms should continue to carefully monitor compliance with data protection obligations. Further regulatory guidance on core provisions of the GDPR is expected during 2019.

1. Brexit

As anyone following the unfolding of the political process of Britain withdrawing from the EU can attest to, the only thing that is certain is the uncertainty.

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