Standard Life Aberdeen – Written evidence (FTS0044)

About us

At Standard Life Aberdeen (SLA) our purpose is together we invest for a better future. We do it to make a difference to the lives of our clients and customers, our employees, society and our shareholders. We are headquartered in Scotland and listed in London, with around 6,000 employees in over 50 locations worldwide. We manage and administer £511.8bn of assets* on behalf of our customers and clients.

We meet the evolving needs of investors and savers. We do this by building lasting relationships and developing innovative products and services. We offer:

• Active asset management to institutional, wholesale and strategic insurance clients around the world;
• Wealth management, financial planning and advice services, either directly to customers or through financial advisers, in the UK.

We also have significant holdings in associate and joint venture businesses: Phoenix in the UK, HDFC Life and HDFC Asset Management in India, and Heng An Standard Life in China.

Executive summary

As a global asset manager SLA has a direct interest in the future relationship between the EU and the UK. We welcomed the EU-UK Trade and Cooperation Agreement (TCA) announced on the 24 December 2020. Given the need for a reliable and consistent regulatory environment that provides certainty to all investors, we believe the TCA to be mutually beneficial and we encourage both sides to continue work towards closer economic co-operation and a financial services relationship that prioritises investor protection and market integrity.

As expected, the TCA does not cover financial services substantively or provide for a bespoke market access regime for the UK. However, we are encouraged by the Joint Declaration which states that both parties will agree by March 2021 a Memorandum of Understanding (MOU) establishing a framework for structured regulatory cooperation on financial services. Notwithstanding this Joint Declaration, there is already a provision in the 2019 MoU between the FCA, ESMA and EU27 NCAs on supervisory cooperation which allows asset managers to continue to delegate portfolio management services from the EU to the UK (as confirmed by industry supervisors on 17 July 2020).

Prior to the UK’s withdrawal from the EU on 31 January 2020 we took a number of steps to ensure the continuity of our services to our customers, clients, and operations:

• Establishing an EU MiFID firm in Dublin, Aberdeen Standard Investments Ireland Limited, to provide portfolio management and distribution services to clients in the EU27. This company is now fully staffed and operational, contracting with a range of EU clients, and we expect the business to expand further over time.
• Restructuring our EU branch network under the new MiFID firm to provide services and support the distribution of Group products.
• Expanding the activities of our Luxembourg-based management company to provide services to an increased number of Irish and Luxembourg domiciled funds.

As a consequence of these preparatory actions we are not directly dependent on any element of the EU’s equivalence regime for continuity of our operations. However, the lack of equivalence creates complexities in market infrastructure which impacts the routing of trade flows and regulatory reporting. We are therefore closely tracking developments on key aspects of equivalence which could affect the venues and counterparties that we rely on for trading and clearing of EU instruments. In that respect, decisions on MiFID and EMIR equivalence will be significant for UK firms in general.

Regardless of the lack of direct impact that equivalence decisions could have on our business, we believe a transparent regulatory dialogue that prioritises investor protection and market integrity is pivotal given the importance of the existing ties between the two parties.

While respecting the freedom of the EU and the UK to execute autonomous decisions, a transparent regulatory dialogue would also be consistent with the TCA’s ambition to create a “predictable commercial environment that fosters trade and investment” by allowing businesses and consumers to anticipate regulatory change. As mentioned, in order to accomplish our mission to invest for a better future by building sustainable and reliable client-led services, we would like to highlight the need for a reliable and consistent regulatory framework which provides certainty to all investors, including on the granting and withdrawal of equivalence decisions.

In this context we would like offer the following responses to some of the specific questions set by the committee as part of this inquiry.

Question 5. How will the arrangements in the EU-UK Trade and Cooperation Agreement shape UK-EU trade in financial services?

As mentioned, at SLA we believe the EU-UK Trade and Cooperation Agreement (TCA) to be mutually beneficial and encourage both sides to continue to work towards closer economic co-operation. While the agreement does not cover financial services substantively or provide for a bespoke market access regime for the UK, we are encouraged by the Joint Declaration which states that both parties will agree a Memorandum of Understanding (MoU) establishing a framework for structured regulatory cooperation on financial services.

We believe this MoU should provide for a purposeful bilateral regulatory dialogue with the key objective of promoting transparency and certainty in decision making, with a strong focus on equivalence determinations. In order to determine the specific areas to be covered by this MoU, we believe due regard must be given to the existing suite of MoUs (i.e. the IOSCO Multilateral Memorandum of Understanding on Consultation and Cooperation and the Exchange of Information, and the MoUs with EU and EEA authorities) and focus on the aspects of regulatory cooperation not already covered.

Notwithstanding the regulatory cooperation MoU currently under negotiation, as an asset management business we were also reassured by the supervisors’ confirmation of the February 2019 cooperation and exchange of information MoUs, which confirmed our ability to continue to delegate portfolio management services from the EU into the UK and vice versa. For investors, delegation offers access to global markets, a diversified portfolio and the ability to invest with skilled managers. For global asset managers that specialise and concentrate in local markets, delegation allows for the creation of economies of scale and strong oversight.

As part of the negotiation of the TCA’s MoU on regulatory cooperation, we hope both parties agree to a timely dialogue on potential/upcoming policy initiatives and regulatory change in order to make decisions on each side as foreseeable and predictable as possible. These timely exchanges will allow both the parties to the MoU and other stakeholders to better anticipate policy and regulatory change on all-important issues including delegation and equivalence determinations.

Question 6. The Joint Declaration on Financial Services Regulatory Cooperation sets out that both sides seek to establish structured regulatory cooperation on financial services. What form should this dialogue take?

While acknowledging that the parties should retain full autonomy in their decision-making, we believe that the EU-UK MoU should provide for a relationship that is as collaborative and transparent as possible. A close dialogue between the two parties would be consistent with the ambition set by the Joint Declaration on Financial Services to establish a “durable and stable relationship” and reflective of the close ties between the EU and the UK. 

Such dialogue should also reflect the starting point of the new relationship between the two parties, which is the highest possible level of regulatory convergence, identical rulebooks, and high supervisory standards. The UK and the EU will also continue to converge on the overall outcomes to be achieved, namely financial stability, market integrity, and the protection of investors and consumers. Such convergence should underpin future cooperation and confidence in each other’s markets, and allow for the maintenance of the existing delegation model.

We suggest that, in a similar vein to the EU-US Financial Regulatory Forum, the EU-UK MoU should set out structures for dialogue, including at ministerial and parliamentary level, on a regular basis, as well as expert groups (structured forums) focusing on specific areas of financial services. By exchanging their work programmes and regulatory plans on an annual or bi-annual basis, both parties should aim for the highest degree of transparency by exchanging information on upcoming regulatory changes, as mentioned above.

Regarding equivalence, while we acknowledge each jurisdictions’ right to make unilateral and autonomous decisions, we believe a framework adding clarity and transparency to the equivalence decision-making process would be beneficial. Given the impact of both the granting and the withdrawal of equivalence determinations in a particular area on industry stakeholders, we see merit in a structured cooperation framework requiring each party to:

1) provide a work programme indicating timelines for equivalence assessments and equivalence decisions;

2) consult the other party to seek relevant data and information with reasonable deadlines;

3) provide an opportunity for the other party to comment on an equivalence assessment before a decision has been made;

4) once a party has reached an equivalence determination, provide an explanation for the decision.

As part of the process, we believe that there is merit in consulting stakeholders during the assessment phase.

Finally, regarding the withdrawal of equivalence determinations, we believe there could merit in encouraging both sides to warn the other about early concerns around determinations and providing an opportunity to respond to those concerns. Early warnings to stakeholders highlighting those concerns and the possibility of an equivalence determination being withdrawn would also help stakeholders to prepare for such scenario.

Question 7. Given the plans to delegate more powers to financial regulators, what form of Parliamentary oversight of these regulators would be appropriate?

The default outcome of the UK’s withdrawal from the EU is a high concentration of power with the FCA and PRA. The UK regulatory authorities should have a clear sense of purpose around investor/client protection, market integrity, financial stability and promoting competitive markets to the benefit of customers. It is therefore important that there is sufficient parliamentary oversight, external input (e.g. expert /stakeholder panels), and strengthened accountability to Parliament.

We support the Investment Association’s suggestion to create a parliamentary group tasked to consider policy formulation, which could provide a more effective link between the sector and Parliament. As highlighted by the IA, this could be performed by the Treasury Committee if its role was widened to incorporate this mandate and it were given further resources to carry out its duties effectively.

Whichever approach is taken there is a need for an effective and informed body to scrutinise the activity of the FCA and hold the FCA to account in the new regulatory environment. There should also be a dedicated financial services committee in the House of Lords, which would replicate the role it played through the EU Financial Services Sub-Committee that was widely seen to have been a reflective and well-informed group. 

February 2021