Following a year-long consultation process on its Asset Management Market Study, the FCA has released its first proposal of changes — which are set to have a significant and far-reaching impact on the asset management sector.
The FCA has proposed that, by September 2019, asset managers should appoint a minimum of two independent directors to their board (regardless of the size of the firm) to balance the interests of shareholders and investors appropriately. These independent directors should comprise at least 25% of the total board membership.
Additionally, the FCA’s Senior Managers Regime (SMR) is being extended to asset managers in 2018–2019, bringing with it new prescribed responsibilities for executives and the board. These include:
The Chair will be directly responsible to the regulators for complying with these responsibilities.
The FCA has estimated that their proposals will require the sector to appoint a further 480 independent directors. This has raised inevitable questions over whether that many are available, particularly with new rules around conflicts of interest. Another challenging aspect is that these new independent directors do not need to have any previous Financial Services experience, yet will be considered senior managers under SMR.
The role of the existing board members has become much more challenging. They are now expected to:
Any change in board make-up, particularly several new members in a short period of time, will have an inevitable impact on the dynamic of the board, as well as altering the conversations around the boardroom table and therefore how decisions are made. Boards will need to reassess their priorities and address how and where they are spending their time in meetings across strategy, performance and governance, particularly in light of the requirements from the regulator.
Inevitably, change and regulation in the boardroom bring board papers under sharp scrutiny. It will be key for asset manager board papers to ensure that assessment of value and transparency are woven into reporting at all levels. Board members are required to demonstrate that investor interests are being put first, and the conversations board papers stimulate around the boardroom table must reflect this. Papers must also have the right strategic content to provide the new independent directors with an accurate picture of the direction of travel, as well as cover performance metrics in a board-appropriate level of technical detail.
Company Secretaries play a crucial role in enabling board directors to discharge their duties. Part of the challenge will be ensuring that report writers understand the changes and write papers with the right level of technical detail and transparency. They will also need to work closely with the Chair to ensure that board meetings agendas are planned effectively to reflect the topics that need to be discussed.
In the asset management space, there are a few key topics that are vital to be informed about, and a few key questions that you should be able to answer: