Global Trustee and Fiduciary Services News and Views Issue 50

Global Trustee and Fiduciary Services News & Views | Issue 50 | 2018 51 1 See https://www.fca.org.uk/news/press-releases/fca-sets- out-next-steps-improve-competition-uk-asset-management- industry and https://www.fca.org.uk/publications/ policy-statements/ps18-14-extending-senior-managers- certification-regime-to-fca-firms. Link here . 2 Investment Company Institute (ICI) Q1 2018. 3 https://www.ici.org/pubs/faqs/ci.faq_fund_gov_idc.idc. 4 https://www.centralbank.ie/news/article/conduct-risk- culture-and-regtech---colm-kincaid-director-of-securities- and-markets-supervision. Link here . 5 https://ukfundboards.com/2018/07/05/the-state-of-uk- investment-trust-boards-2018-study/. Link here . • Extent to which economies of scale would be realised as the fund grows. • And extent to which fee levels reflect these economies of scale for the benefit of fund investors. In the US, material factors and conclusions on the assessment of advisory contracts must be included in shareholder reports. The search for INEDs The UK corporate governance code, clarifies, that in order to avoid conflicts, newly appointed INEDs shouldn’t be former employees or people who have had a material business relationship with the company whose board they intend to join. The recruitment of suitable independent AFM candidates has featured regularly in industry press, and is also acknowledged by the regulator. Recent mentions include The UK Fund Boards 2018 study, conducted by research consultancy UK Fund Boards (UKFB), which finds just 11% of board members are independent. 5 This is some way off the 25% the FCA expects in 12 months’ time. In addition, gender diversity was also “weak” with only 17% of members being female, markedly lower than the broadly accepted target of 30% on FTSE 100 boards and lower than the 22% female representation on investment trust boards. Issues are also highlighted concerning whether independent directors have sufficient expertise and experience to be able to make judgements on whether the AFM is managing each fund in the best interests of unitholders. While an asset management background can be advantageous, it’s not essential. In the search for suitable candidates, some approach other financial services firms who operate in different sectors. Indeed some candidates originate from non-financial services industries. Across other industries, many encourage their executive directors to offer INED services to other businesses because it broadens experience and can add further value to that person’s existing role. It can also provide a useful perspective on and fresh ideas and insights into what’s best practice in other industries. In Ireland, directors often hold multiple roles. Though this appears positive initially, it can also bring other concerns for management stretch and spans of control, where directors may have too many responsibilities within a single firm. As mentioned, these individuals face greater scrutiny where a director has more than 20 directorships or an aggregate professional time commitment in excess of 2,000 hours a year. Asset managers will be looking to see what experience a potential INED can bring to their board, in terms of the individual’s skills and understanding of corporate governance codes and guidelines. These should also be people able to easily and clearly set out the key strategic successes of their career, so whatever background and experience they bring to the board, their skills, and potential can be easily evaluated relative to the overall board composition. Governance remains in focus Whether you’re a UK-based, overseas or global asset manager, you’ll see more regulatory thematic studies into governance arrangements and additional supervisory focus in this area. While the FCA leads with SM&CR and AMMS, other work is underway at IOSCO and the FSB which drive the global conduct agenda. As individual board members evaluate their responsibilities and roles, you, as asset managers, can also expect further interest from consumer bodies and challenge from individual consumers as to whether they think overall value is delivered and treated fairly. To reiterate the words of Coco Chanel, the most courageous act is to think for yourself . . . but do stand ready to defend those thoughts! Matthew Bence Senior Manager PwC Claire Wallace Director PwC