Funds-Axis recently had the privilege of attending The Irish Funds 10th Annual UK Symposium, a gathering of industry leaders and experts. The symposium provided a platform to look into the current dynamics of the financial landscape, discussing key trends, regulatory changes, and future outlooks.
Here, we share some of the insightful takeaways from this event:
1. ELTIF 2.0: A Push Towards a New Product Type
A significant buzz surrounds ELTIF 2.0, indicating a notable industry shift. Despite the anticipation, there seems to be limited demand, primarily from a few key players. The Central Bank of Ireland (CBI) is proactively facilitating a swift route to market, ready to authorise ELTIF 2.0. Notably, the CP155 consultation introduces the possibility of dual authorisation as both an ELTIF and an Irish fund, providing an additional layer of protection and reassurance to clients. Asset managers express concerns about liquidity and distribution, particularly for retail products.
2. LDI (Liability Driven Investment): A Focus for 2024
According to the CBI, Liability Driven Investment (LDI) is anticipated to be a significant focus in 2024. Recognising the increasing importance of leverage regulation, consultations are currently underway regarding LDI funds.
3. Regulatory Change Panel Insights
CBI Comments
As the EU Commission undergoes changes, the regulators emphasise the importance of preparation to influence new policies and targets for the next commission. Operational resilience and liquidity bucketing are key focuses for the CBI, with increasing attention on leverage. Pensions are expected to be a significant focus, and a Consumer Duty consultation is due in Ireland next year, aiming for a “better” solution rather than replicating the UK. Sustainability remains a substantial part of the workload, and the CBI aims to become an intelligence-led regulator, anticipating a surge in data demand.
FCA Comments
The Financial Conduct Authority (FCA) is currently surveying the internal risk environment, emphasising the need to avoid issues akin to Credit Suisse/UBS. They express concerns about geopolitical issues and acknowledge the impact of industry consolidation and fee pressures. Distributors in the UK are expected to require boards to provide Consumer Duty/Value for Money assessments. The UK has introduced new sustainability rules, covering labelling, naming and marketing rules, and regulations against greenwashing. An offshore funds regime is imminent, with further regulation expected for money market funds. Looking ahead to 2024, the FCA aims for growth in private assets/markets and the establishment of valuation rules for these assets.
4. Regulatory Convergence
There is a general acknowledgment that significant divergence in regulatory approaches isn’t beneficial. The FCA strives to be a major influencer in global regulatory policy, emphasising the increasing importance of EU convergence. A focus on quicker, synchronised interpretation over competitive regulation is encouraged, especially with a global regulatory approach being conduct-led. The spotlight is on delegation, particularly from the European Securities and Markets Authority (ESMA). The UK has recently published a regulatory initiatives grid.
5. Use of ChatGPT
In anticipation of a dynamic evolution of the industry, there’s a cautious approach, emphasising control. Trust, being the cornerstone of the industry, requires that any introduction, particularly of technologies like AI, should be risk-based and pragmatic. Suggestions include starting with predictive AI, which theoretically involves machine learning. Generative AI, with its complexity, requires careful consideration of ground rules and guardrails.
6. Future of ETFs
The growth of Exchange-Traded Funds (ETFs) is expected to continue, driven significantly by naming conventions and cost considerations. However, certain challenges exist, such as liquidity mismatch and the increasing need for product teams to compete based on innovation, given the tight margins. The direct-to-customer segment is relatively small but presents an untapped market. Success in the ETF space ultimately hinges on the product team’s ability to compete effectively.
7. ESG Discussion
The UK’s SFDR and SDR regulations differ significantly from their European counterparts, highlighting the need for robust human capital management and clear disclosures. Individual companies are advised to focus on human capital management, disclosure of short-term and longer-term targets, and to keep the ESG agenda at the forefront. While the next climate discussions may not yield immediate results, the advice is to persist with the ESG agenda, as it remains a significant consideration in Europe.
8. Distribution Challenges
Net outflows of 47 billion from the EU/UK this year suggest a trend toward safe assets until interest rates decline. Active managers face an increasing need to offer a partnership-based service rather than merely a product. Client service is underscored as a key element, especially given the current consolidation of fund selectors, which is posing challenges for smaller managers. Regulators are urged to define the type of industry they want, emphasising the importance of the right signals, information, and service.
9. Global Economic Outlook
The global economic outlook presents challenges associated with a short-term focus on current events. Demographics emerge as one of the biggest problems, with rapidly aging populations and shrinking working populations. Housing affordability stands out as a significant global issue, impacting discretionary spending and family planning. The extreme example of Korea highlights a potential 60% decline in population if current birth rates persist. This could lead to increasing retirement ages by a decade, as states may struggle to afford pensions. While automation is seen as a potential offset for a shrinking workforce, the energy transition is expected to command a substantial investment, with an anticipated spend of 3-4% of global GDP.
10. Conclusion: The Path Forward
The Irish Funds 10th Annual UK Symposium offered a panoramic view of the financial landscape, highlighting challenges and opportunities. As we navigate through these dynamic times, industry players are urged to stay informed, adapt to regulatory changes, and embrace technological advancements. At Funds-Axis, we remain committed to providing innovative solutions and valuable insights to empower our clients in the ever-evolving financial landscape.
Stay tuned for more updates and deep dives into the transformative trends shaping the financial industry!
