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PIMFA WEEKLY NEWS BULLETIN | 14 June 2021 Dear Nigel,
Welcome to the PIMFA Bulletin; grab a coffee and take 10 minutes to read this week's latest industry news impacting you and your firm.
G7 finance ministers agree historic tax deal
The G7 countries' finance ministers meeting reached a deal on 5 June 2021 which will make it more difficult for the world’s largest companies to avoid paying taxes. The G7 ministers agreed on a minimum 15% global corporate threshold that will force big companies to pay tax in the country in which they generate their business. Under a “two-pillar” strategy, large multinationals with a profit margin of 10% or more would be required to pay taxes on 20% of profits they earn above the 10% threshold in the countries where they generated the revenue. The second pillar commits countries to a global minimum corporate tax rate of 15% to avoid undercutting each other .
The agreement will contribute to the global efforts through the G20/OECD Inclusive Framework to address the tax challenges arising from globalisation of the economy and to adopt a global minimum tax. UK Chancellor Rishi Sunak said this was “a truly historic agreement” and praised the G7 for showing “collective leadership at this crucial time in our global economic recovery.”
Foreign investors back Europe
According to a EY report, foreign investment in Europe declined 13% in 2020 as COVID-19 interrupted investment plans and triggered uncertainty. Investment is set to rebound this year: 40% aim to establish or expand operations in Europe in the next year, up from just 27% in early 2020. Due to Germany’s relative success in containing COVID-19 during 2020, its investment fell less precipitously than in France and the UK, leaving the three countries virtually tied as Europe’s top investment destinations. France attracted 985 projects, the UK 975 and Germany 930.
The long-term outlook seems encouraging: when asked which regions will be most attractive to establish operations when the COVID-19 pandemic is behind us, Western Europe ranks first, with Central and Eastern Europe and North America tied in second place. In parallel, 63% of investors believe Europe’s attractiveness will improve during the next three years. Only 5% think it will decrease. Digital skills have long been mentioned as a priority for governments seeking to attract international investment. The new role of technology triggered by COVID-19 makes this an absolute imperative. Tellingly, 92% of international investors say that the availability of a workforce with technology skills is an important factor that determines where they invest. Environmental sustainability increasingly influences investors’ location decisions: nine in ten surveyed businesses say sustainability is important to their investment strategy.
Encouragingly, 85% of businesses already consider Europe a green leader. businesses also face pressure to address other societal problems, from income inequality to the ethical challenges associated with new technologies such as artificial intelligence.
Bank for International Settlements and Bank of England launch Innovation Hub London Centre
On 11 June, the Bank for International Settlements (BIS) and the Bank of England launched the BIS Innovation Hub London Centre, the fourth Innovation Hub Centre to be
opened in the past two years. "As a central bank, we recognise the importance of innovation for the global financial system and look to support its safe deployment wherever possible. This requires collaboration between public authorities in all jurisdictions, and the BIS Innovation Hub is an important global initiative for achieving this," Andrew Bailey, Governor of the Bank of England said.
The BIS Innovation Hub's work programme is currently focused on six areas: use of technological innovation in supervision and regulation (suptech and regtech), nextgeneration financial market infrastructures, central bank digital currencies, open finance, cyber security and green finance. Work related to these themes is distributed across the various Hub Centres. "The UK is known for pushing the boundaries of digital finance so it's great to have the new Innovation Hub opening here. Its work will help central banks to support safe innovation and boost our efforts to capture the extraordinary potential of technology," Rishi Sunak, Chancellor of the Exchequer, said. The launch is part of a plan to expand the global reach of the BIS Innovation Hub, which also includes the opening of Centres with the Bank of Canada (Toronto), the European Central Bank/Eurosystem (Frankfurt and Paris) and the four Nordic central banks (Danmarks Nationalbank, the Central Bank of Iceland, the Central Bank of Norway and Sveriges Riksbank) in Stockholm. In January 2021, the BIS signed a memorandum of understanding for a strategic collaboration with the Federal Reserve System (New York).
The UK as a leading centre for international sovereign wealth funds
TheCityUK's latest economic research examines a financial services sub-sector that is often surrounded by a certain mystique: sovereign wealth funds (SWFs). The report sheds light on a particular class of fund renowned for its relative lack of disclosure of data, examining the scale and segmentation of SWF assets under management and considering SWFs as critical providers of global capital.
SWFs have risen in number and grown substantially in assets under management (AUM) over the past decade. In 2020, SWF AUM reached $6.4trn globally, up from $4.1trn in 2010. In addition, TheCityUK estimates there was also $7.9trn held in other sovereign investment vehicles in that year, such as pension reserve funds and development funds. As the UK and other countries around the world focus in the coming years on post-
pandemic economic rebuilding, SWFs represent an addition to the range of financing sources that governments can turn to, alongside other long-term investors such as insurers and pension funds. Meanwhile, the UK’s openness to foreign business, deep pool of expertise and experience, transparent legal system, and safe and stable regulatory environment have contributed to the country’s position as one of the world’s leading fund-management centres, and this includes SWFs. London in particular is an important centre for SWFs as a clearing house and location from which some of these funds are managed. As SWFs continue to open international offices, the potential for the UK to continue its leading role as a host to some of the world’s largest and most important international investors remains undiminished.
Latest PIMFA Press Releases
Rosie Reynolds Marketing joins as the latest PIMFA Plus Partner to help firms develop their digital futures
Latest PIMFA Press Coverage
FT Adviser: How can we stop savers doing nothing at all?
PIMFA voices disappointment at fee approach for Appointed Representatives
FT Adviser: New FCA fees will change
PIMFA launches their first industry awards to recognise companies promoting diversity and inclusion
DiversityQ: UK financial services scene to get
PIMFA welcomes FCA plans to stop Claims Management Companies from ‘Phoenixing’
Portfolio Adviser: Mass UK adviser exit fails to
mortgage advice sector, says trade body
new D&I awards
materialise despite tougher regulation
Money Age: AMI criticises FCA’s fees and levies consultation
Sustainable finance – the Green Technical Advisory Group appointed
The Green Technical Advisory Group has been appointed to oversee the Government’s delivery of a “Green Taxonomy” – a common framework setting the bar for investments
that can be defined as environmentally sustainable. With these clear definitions, the UK Green Taxonomy will clamp down on greenwashing, unsubstantiated or exaggerated claims that an investment is environmentally friendly and make it easier to understand how a firm is impacting the environment. GTAG will be chaired by the Green Finance Institute and made up of financial and business stakeholders, taxonomy and data experts, and subject matter experts from academia, NGOs, the Environment Agency and the Committee on Climate Change.
The role of the GTAG will be to advise on approaches to developing a UK Taxonomy that is usable and practicable for financial and non-financial firms and which will drive informed decision-making for investors whilst placing a proportionate burden on business. The GTAG will also provide the rationale, implications and recommendations for any deviations from existing international frameworks or taxonomies, advise on how to deal with and manage any data gaps, how the UK Taxonomy can best support the UK’s transition to Net Zero and how it could be used to align and accelerate the delivery of wider HMG policy, including its Net Zero Strategy, Green Finance Strategy and 25 Year Environment Plan.
Accelerating the S in ESG – a new IRSG report
A new report from the International Regulatory Strategy Group (IRSG), in partnership with KPMG, published on 7 June 2021, calls for a global approach to social principles and standards to deliver better outcomes and make global markets more resilient. The report warns that, while social issues have become central to the reputation of companies across all sectors including financial services as part of the ESG agenda, a lack of consistency and comparability in approaches and data risks are impeding the direction of capital towards more sustainable investments. Social or ‘S' factors of ESG can be more difficult for investors to define and quantify than the ‘E' (environmental) and ‘G' (governance) factors. The IRSG, an advisory body to the TheCityUK and the City of London Corporation, urges policymakers to secure a global consensus on an overarching set of global social principles and accompanying metrics before then developing global social standards to improve transparency and accountability.
International banks and financial institutions should act as a catalyst of change by applying consistent standards across all jurisdictions they operate in to raise social standards. In order to accelerate progress, the report recommends that a lead social principle should be
chosen to prioritise and narrow focus by finding common ground across jurisdictions. The IRSG recommends that modern slavery is the most appropriate lead principle. An ambassador should be appointed to lead this agenda, starting with modern slavery but, over time, promoting socially sustainable finance more broadly. Finally, the report calls for regulation that creatively encourages voluntary efforts (including by the financial sector) by incentivising progressive improvement rather than relying on the addition of further criminal offences, many of which cannot be enforced in practice.
EVENTS & LEARNING
Diversity & Inclusion Awards Entries Close: 17 August | Event Date: 20 October The inaugural PIMFA Diversity & Inclusion Awards will be taking place on 20 October and entries are NOW OPEN! Please click here to view the categories. One of PIMFA's priorities is to develop, support and encourage initiatives to create a more diverse and inclusive industry, and we know there are pockets of D&I good practice that remain hidden or unrecognised, so we have launched these awards as an opportunity for your firm and colleagues to be recognised for the wonderful work being carried out. Entry to the PIMFA D&I Awards is free and open to all firms, large or small, and stakeholders in the wealth management, investment services and financial advice sector.
Please click here to find out more and start your entry.
View upcoming PIMFA Events and Learning here.
PARTNER EVENTS
Morningstar Investment Conference 29 - 30 June
The annual Morningstar Investment Conference will be taking place as a digital event again this year, hosted online on 29-30 June. The conference is FREE for advisers, wealth managers and paraplanners to attend. The agenda continues to grow! As well as sessions on ESG and how it can be implemented into the Adviser practice; Greenwashing (presented by Hortense Bioy, Director, Sustainability Research, Global Manager Research at Morningstar, a session from foreign affairs broadcaster Tim Marshall on Geopolitics and Jim Leaviss, Head of Public Fixed Income and Fund Manager of the M&G Global Macro Bond Fund who will be discussing the importance of a flexible approach when it comes to Fixed Income Investing.
More speakers will be joining and you can rest assured that we will include research, insights, and analysis from our Morningstar subject matter experts that can help us all explore new horizons for empowering investor success. All content from the conference will be available on demand until 30 July. Find out more and register here.
ESMA launches 2021 CCPs stress test
The European Securities and Markets Authority (ESMA) has published the framework for its fourth Stress Test for Central Counterparties (CCPs). ESMA is required by the European Markets Infrastructure Regulation (EMIR) to initiate and coordinate this exercise to assess the resilience and safety of recognised EU and Tier 2 Third Country CCPs to adverse market developments and to identify any potential shortcomings. The 2021 Stress Test addresses credit and concentration risks, and uses improved methodologies, including lessons learned from previous exercises, such as assessing the combination of concentration costs and credit losses when liquidating defaulting portfolios or including an intraday exercise for credit. For the first time, and in line with ESMA’s mandate, the exercise also covers operational risk.
The new stress test exercise has the following components: Credit Stress - assessing CCPs’ resources ability to absorb losses under a combination of market price shocks and member default scenarios; Concentration risk - assessing the impact of liquidation costs derived from concentrated positions; Reverse Credit Stress - increasing the number of defaulting entities and level of shocks and/or liquidation costs to identify at which point CPPs’ resources are exhausted; and Operational risk - assessing the importance of shared service providers in the clearing industry and interconnections of CCPs. The new exercise covers the 13 CCPs authorised in the EU and the 2 UK CCPs classified as Tier 2 - LCH Ltd and ICE Clear Europe Ltd. The publication of the final report and results is scheduled to take place in H2 2022.
FCA's SM&CR 12 week rule – Handbook Notice N.88
On the 28th May, the FCA published Handbook Notice N.88 in which it summarised the changes to the Handbook made as a result of the Individual Accountability (Miscellaneous Amendments) Instrument 2021. The changes reflect the FCA’s expectations for firms to notify the regulator when an Approved Person at an Appointed Representative firm (AR) or a Senior Manager takes temporary leave for longer than 12 weeks (long-term leave). An additional field has been added to Form D to enable firms to notify the FCA that a relevant individual is taking leave or returning from leave.
You can read the Handbook Notice in full here.
Information Commissioner's Office (ICO) - Paying a data protection fee
In late 2019 the ICO wrote to companies in the finance sector to remind them about the legal obligation for organisations to register with the ICO and pay the data protection fee. Many investment management companies responded, either registering with them, or telling them that they are exempt.
Due to the pandemic, and the challenges businesses have been facing, the ICO have not previously followed up with the companies that didn’t respond, but they will be writing to them in the next few weeks to remind them to check whether they need to pay the fee. You can find information about the campaign here, and they also have a web hub specifically designed for small and medium enterprises which has lots of tips and simple guides, which can be accessed here.
PIMFA's Consultation Responses
PIMFA’s latest Consultation Response is to the FCA's CP21/7 on a new UK Prudential regime for MIFID investment firms.
Read this and all other PIMFA consultation papers here.
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