Global Trustee and Fiduciary Services News and Views

Global Trustee and Fiduciary Services News and Views

| Issue 47 | 2017

There are many influencers of behaviour, from

the tone of conversations to what actions

are rewarded. Senior managers are in a

powerful position to drive the right outcomes

and can use a number of different tools. To

start, what do you look for when recruiting?

During the selection process do you test the

judgements they would make, ideally using

examples from their own experience? For those

already employed, what is considered when

talking about compensation and promotion?

Is it just financial performance, or do other

measures such as their behaviour feed into the

assessment? If people in your company see

types of conduct being sought from new joiners

or rewarded in their peer group, they will want

to mirror those behaviours, good and bad.

Turning to best execution as a case study

Best execution has received a lot of attention

lately, and the FCA is likely to continue its

interest. Best execution requirements are

changing under MiFID II, and there is also a

growing focus on best execution in fixed income.

From the perspective of the SM&CR, best

execution should sit within the responsibilities

of a senior manager who understands the

relevant risks and requirements. Indeed, this

was good practice identified by the FCA in its

“Best execution and payment for order flow”

thematic review.

The senior manager will need to rely on those

executing trades to achieve best execution, and

may also delegate oversight of best execution.

The behaviour of the individuals to whom

best execution tasks have been delegated will

be shaped by the firm’s policies, procedures

and controls, but also by the culture in the

company and the front office. To discharge their

personal responsibility, the senior manager will

need to receive the right information from the

business. This is likely to include monitoring of

whether best execution is being achieved, but

also whether processes are being followed and

whether exceptions indicate that individuals are

not executing trades as expected.

In addition to the senior manager responsible

for best execution, a governance forum is also

likely to have an oversight role. The forum

will need to be at an appropriate level in the

organisation so it receives sufficiently detailed

information to monitor best execution. It will

also need to have members with sufficient

knowledge and expertise to provide effective

challenge to manage the risks to achieving best

execution. Reporting and escalation from the

governance forum should feed into the senior

manager’s view of whether best execution

arrangements are working as they should.

Second- and third-line reviews also have

important roles to play. These functions should

be checking whether best execution is being

achieved, whether the policies, procedures,

controls and oversight are effective, and

whether they remain in line with regulatory

expectations. The responsibilities for second-

and third-line functions will sit with other

senior managers, maintaining the important

segregation of duties between the first, second

and third lines of defence. Work done by the

second and third lines needs to be mapped to

the senior managers responsible for the areas

reviewed so reports can be delivered to the

appropriate individuals. The reporting will allow

a senior manager to ensure any issues are

appropriately addressed, and support them in

discharging their responsibilities.

Taking the opportunity to step back

It is often difficult to step back and review the

effectiveness of arrangements that have been

in place for some time. The SM&CR provides an

opportunity to take the time to carefully review

how your business makes decisions, oversees

delegation and drives behaviours. All these tie

together to produce the outcomes you deliver to

the investors in your funds. It is these outcomes

that the regulator is interested in, and for which

it will hold senior managers accountable.

Matt Bence

Manager

PricewaterhouseCoopers LLP

FSMA or Financial Services and Markets Act.

“New Accountability Regime for Banks and Insurers Comes

into Force”, Bank of England News Release, 7 March 2016.

Best Execution and Payment for Order Flow, FCA Thematic

Review TR 14/13, July 2014.