Unit 7 - Applications of reg/leg framework Flashcards
Trust law
Trustee has right to possession, privelege of use
Beneficiary receives all benefits
Trustee has fiduciary duty to act in best interests
Used to pool together various members interests
Aim of corporate governance
To make sure company ran in best interests of all stakeholders
What rules are there for good corp governance?
FRC’s corporate governance code
Comply or explain for listed companies
5 principles in FRC Corp Gov code
- Board leadership
- Division of responsibilities
- Composition, succession and evaluation
- Audit and internal controls
- Remuneration
Listings authority
Responsible for ensuring that any new issue of shares is conducted in orderly and fair way
Ensures plenty of information is published so that potential shareholders have info
ESG
Need to consider factors when investing. Responsible investment
Pension funds need to show how investing in line with ESG, including discussing with investment managers on their beliefs/scorecards etc
Competition/fair trading controls
Concerns around economies of scale escalating to price setting power. Lack of competition creating monopolies.
Leads to state monopolies and regulators in different key industries (e.g. OFGEM).
Fair trading laws exist to protect consumers with individually weak bargaining power.
Investment manager restrictions
Similar to those of a SIP: Inv in company? N - realisation of assets V - governance and ESG Expected returns and risks SFO and how to meet Type of asset Min/max - in one asset and illiquid Exposure to currency N - mixture of assets T - futures and options
How should financial service providers behave?
C - Collect info on customers - e.g. investment obj
R - Relation with regulators - open and transparent, honest
I - Internal org - Organise itself well, good records, well trained
S - Skill and care
P - Provide info - Enough to make balanced decision
M - Market conduct - Comply with codes/standards
I - Integrity
C - Conflicts of interest - declare and deal
R - Resources - Have enough to operate
A - Assets - e.g. client money - segregate
Institutional investment practices
BOOMED APART
B - Benchmarks - indexes and how much to diverge. Active/passive better? Will active get better returns?
O - Objectives - expressed vs liabs, considers ATR
O - Operations - consider front/back office when choosing managers
M - mandates - objectives, approach to meeting, timescales, measurement of perf
E - Expert advice - should pay for competence
D - Decision making - need to consult with skilled people
A - Asset allocation - consider all assets and requirements of specific fund
P - Performance - consider performance of themselves as trustees, and advisers
A - Activism - Strategy on when to intervene
R - Reporting - regular, publish SIP
T - Transparency - SIP contain (fund objective, who taking decisions, mandates, planned strategy, fees structure)
EU financial markets
- Equities - national level due to listing requirements
- Bonds - govt bonds sold EU wide
- Euro money markets - fully integrated with short term euro int rates identical across borders
Barriers to retail financial services across EU borders
Type of product - not authorised everywhere
Cost of regulations in different places prohibitive
Cultural preferences
Tax systems
Point of MIFID
To create level playing field for firms to compete in EU’s financial markets. Covered:
- Pre and post trade transparency
- Execution policies
- Client classification
- Conflicts of interest
- Conduct of business rules
When did MIFID 2 come in?
MIFID 1 - 2007
MIFID 2 - Jan 2018
What does MIFID mean?
Markets in financial instruments directive
