Are firms ready?
Broadridge Financial Solutions, today announced the
publication of an industry white paper that explores UK market views on the
specific requirements set out in Chapter 5 (Investing in authorised
funds through nominees) of the Retail Distribution Review
(RDR). These rules relate to those organisations responsible
for the provision of nominee services to retail investors investing
in authorised funds, and demand the timely distribution of certain
mutual fund information and notification of voting events to all
underlying investors.
"This white paper presents the many concerns of firms that are
faced with implementing mechanisms in order to be compliant with
the upcoming rules," said Bruce Babcock, President, Investor
Communication Solutions International, Broadridge. "Its
findings reveal that firms need to focus on methods of electronic
communication and evaluate other ways to minimise costs, such as
considering streamlining operational functions and making use of
outsource partners. It is also important that they look to
execute best voting practices and ensure that business decisions
made today reflect the possible direction of future
legislation."
The Broadridge white paper, "RDR Intermediate Unitholder
Obligations - The Developing Landscape for Nominees and Retail
Investors," has been produced in association with UK specialist
benchmarking and research organisation, ComPeer Ltd. The
publication is based on industry research and interviews with a
range of market participants including wealth managers (execution
only, discretionary and advisory firms) and platform
providers. The paper offers a detailed insight into the
potential impact this new legislation may have on those holding
nominee accounts - banks, brokers, mutual fund holders and fund
platforms - and delivers a comprehensive overview of the challenges
and concerns that firms may face and the compliance strategies they
are managing.
The FSA-inspired policy aims to supply investors who access
authorised funds through a nominee with the same information as
those holding units in funds directly. Specifically, these
mutual fund nominees (or intermediate unitholders) will have to
make available information that informs the individual investor
about their investments, such as short reports. In addition,
a firm must send notifications of voting events, along with a
summary of the events' subject matter and possible consequences of
the voting outcome.
"Since the circulation of the RDR consultation paper in 2010
little has been discussed about this particular section of the
regulation and its subsequent Policy Statement 11/09 and, as firms
manage the broader requirements of the legislation, we believe it
is in danger of being overlooked," added Mr. Babcock. "This piece
of research aims to bring attention to the obligations and
strategies that need to be considered and adopted by banks, brokers
and platform providers in the UK to support their efforts in
meeting approaching compliance deadlines, for, even with the
possibility of deferral, the guidelines will stand and compliance
will be necessary in the near future."
Key findings of the paper include the following market
recommendations to those firms likely to be affected by the
legislation:
Move to an electronic communications
environment:
Firms should consider implementing an effective e-strategy which
allows them to communicate electronically as much as possible and,
consequently, they must then ensure that they have the means to
maintain clients' communications preferences and up-to-date email
data.
Implement strategies to manage the potential
costs:
The responsibility of complying with these rules is placed
directly on the intermediate unitholder and does not allow
investors to opt out of receiving these communications or be
charged for this service. As a result, firms expect to have
to manage significant distribution and operational costs, including
print, postage and staffing expenditure.
Plan ahead for future regulation:
The systems and infrastructure that will be developed to meet
the requirements of RDR should also take into account future
requirements of other upcoming legislation, namely that of the EU
Securities Law Directive in 2013, which is likely to extend similar
rules to equity investments.
The white paper is available to download at: www.broadridge.com/RDR