SEC issues three no-action letters on Mifid II research provisions

Following a consultation with the European authorities, the SEC issued three no-action letters that deal with access to research and will help provide certainty on US business procedures ahead of Jan 3, 2018.

The no-action relief allows firms to comply the Mifid II research requirements in a manner that is consistent with the US federal securities laws:

– broker/dealers on a temporary basis may receive research payments from money managers in hard dollars or from advisory clients’ RPAs

– money managers may continue to aggregate orders for mutual funds and other clients

– money managers may continue to rely on an existing safe harbor when paying B/Ds for research and brokerage

Chairman Clayton in a release said the relief was designed to “reduce confusion and operational difficulties that might arise in the transition to Mifid II’s research provisions” and to “preserve investor access to research in the near term”. He also pointed out the instrumental cooperation with the European Commission and the additional guidance the EC published.

The relief is intended to give staff sufficient time to better understand the evolution of business practices after the implementation of the Mifid II research provisions.

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Risk & compliance: Aladdin generates $600m for BlackRock from 180 external clients

BlackRock highlights technology as a growth driver and with Aladdin generated $595 million in revenue from 180 external clients last year, up 13% year-on-year.

Compliance and better understand risk have fueled that growth. In 2014 at their annual “Hackathon”, the idea was born to take the product beyond the institutional client base with Aladdin Risk for Wealth Management (“ARWM”), and the product rolled out in 2016 with high demand from intermediary distribution partners.

With the acquisition of FutureAdvisor, iCapital, and iRetire, the technology investment, risk and advisory platform is growing fast.

COO Rob Goldstein describes the firm as a “start-up with enormous scale”, but said that most people, including employees, called them crazy when they first launched the Aladdin platform.

With greater data requirements and transparency requirements coming the industry’s way on Jan 1, 2018 with Mifid II, et al, technology will be the battle field du jour for some time to come.

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PWC’s Asset & Wealth Industry Predictions: Assets “double”, greater risks

PWC in its latest Asset & Wealth Management Industry whitepaper predicts assets to go from $85T to $145T in the next decade – why the authors would call it almost doubling the assets I am not sure (and I am sure plenty of firms would like to get a piece of the $25T rounding error), but let’s go with significant growth overall globally.

The report points to four (or more) main trends that will promote and challenge the business:

– Downward fee pressure by regulators and the industry (we discussed the unintended business model consequences of regulation at our CSI roundtables last month).

– Increased regulation (against commission payments) revolutionizing wealth managers’ raison d’etre.

– Technology changes will drive “quantum change across the value chain” for the “digital technology laggard” (similarly, we discussed a lot of the data and technology challenges for asset and wealth managers in NY, Boston, Paris and London, but I am not sure the industry is as far behind technologically as many make it out to be.

– Asset managers will continue to increase their involvement in trade finance, peer-to-peer lending and infrastructure to equip individuals to save for old age. An interesting thesis and I would agree with the continued innovation post-crisis for the industry with asset managers as demand-based first movers.

– A big focus on outcomes with the need to focus on core capabilities and outsource non-core functions such as tax compliance. The focus on outcomes is undisputed, along with the demand for alternatives and passive investments. However, I am not sure calling active management and growth opportunities in question is called for. True, active management has been challenged mightily since the crisis (and even before), but aside from some of the very large-cap strategies, managers have been able to continuously find value for clients and grow/sustain their businesses. More debate ahead, of course.

– People: “firms must find and develop people with new skills and adapt their employment models to nurture and retain them.” Agreed. A lot of change is under way for the industry, especially inasmuch as data gathering, securing, monitoring and analyzing is moving front and center for legal, operational, risk, compliance and business functions.

A few of the other interesting nuggets that stood out when discussing the asset and wealth management landscape, especially with its implications for compliance, legal and risk functions, are:

– Alternative asset classes will more than double in size (esp real assets, private equity and private debt)

– Managed asset penetration rates will go from 39.6% to 42.1%

– Challenges including geopolitics, Brexit, China moving to consumer-driven economy, potential US policy changes

– Highest growth rates in Asia and Latin America

– Fee pressure will rise with Mifid 2 pushing asset managers’ costs up and banning wealth managers‘ retrocession

– Brexit could cause major disruptions to the European industry

– Transparency impact with Mifid 2 and DOL Fiduciary Rule, CRS, et al

Bottom line: the industry will continue to grow, complexity will increase, and regulation and compliance will drive business models and growth.

Never boring.

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Compliance and RegTech: Paris vs London post Brexit

The Compliance Strategy Institute (CSI) last month held Executive roundtables both in London and Paris, with specific workshops and focus areas around Brexit and the possible competition from Paris and other cities vis-a-vis London in the context of Mifid 2, Brexit, FinTech and RegTech. Ongoing institute working groups are comparing notes on how to best approach the challenges and also business opportunities from a compliance, data and risk standpoint.

The recent FT discussion with the head of KKR’s Europe business around why he moved to Paris from London and what that would mean for the firm, for private equity, and for the European marketplace was instructive on a number of levels and resonated with some of the themes we discussed in NY, Boston, London and Paris (PS, I really enjoyed how KKR allows immediate contact with all its employees, as well as the video and blog work: KKR social media and video approach)

KKR’s EMEA head Johannes Huth has moved from London to Paris and is “fascinated with what’s happening in Paris” – so are we. While London remains the international hub for financial markets and investment management, other countries and regulators are ramping up to compete. The EU is leading the way – possibly globally – with Mifid 2 and the SEC, the FCA and other regulators will have to deal with this new reality. Local regulators such as the AMF have developed task forces to attract more business, in partnership with the local industry, to compete for greater market share post Brexit.

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Treasury Dept vs. SEC?

The Department of the Treasure threw down the gauntlet with “the executive branch’s plan to promote vibrant and diverse investment and savings opportunities through asset management and insurance”.

Treasury Report on Asset Management and Insurance

Citing the US asset management and insurance markets as the global leaders for diverse investment opportunities and vibrant capital markets, the treasury department in its 176-page report says that post financial crisis regulation might have gone too far, and that asset management firms and insurance companies have different legal, structural and operational characteristics than banks.

To better address systemic risk and solvency, the report highlights:

– entity-based systemic risk evaluations of asset managers and their funds are not the best approach for mitigating risk;

– instead, primary federal and state regulators should focus on systemic risks from products and activities and on implementing Regis that strengthen the asset management and insurance industries as a whole;

– a strong liquidity risk management framework is more effective in addressing liquidity risk than stress testing of asset management firms;

– the state insurance regulators and the Fed should harmonize their respective ongoing domestic work on insurance capital initiatives, as well as continue their efforts to assess liquidity risk management in the insurance sector.

Let the games begin.

The Compliance Strategy Institute held numerous workshops with compliance and risk executives globally and is developing global thematic task forces to discuss approaches for asset managers, individually and industry-wide.

Compliance Strategy Institute Firms and Speakers

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VIII Congreso Fiap-Asofondos … Regional long-term fund investment review 

Over the last two days, Asofondos and the Federación Internacional de Administradoras de Fondos de Pensiones (Fiap) hosted their eighth annual round table focused on macro economics, long-term investing and pension funds. 


Held in Cartagena, it brought together investment managers and institutional investors from Colombia, Chile, Peru and Mexico. 

Nobel laureate and MIT professor Peter Diamond and President Santos were the keynote speakers. Asofondos president Trujillo compared the country’s demographic pension issues to Japan. 

Aside from longer life expectancy, individual contributions are too low and overall regulatory impetus needs to be on investor incentivation and education. As of February 2015, private pension funds had about $158 billion in AUM.

In addition to associations and government representatives, fund executives included BTG Pactual, Pictet, AFP Old Mutual, Amundi, and MetLife. 

Puzzling to me is why there aren’t more U.S. managers taking advantage of the time zone proximity and brand strength. 

Time for WarrenEnskat to organize something for 2016. Stay tuned. 

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Ley seca. 

Very interesting… Tomorrow are some local elections here in Colombia and so tonight the country is banned from drinking so they don’t show up drunk for the vote. 

Love it. 


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