Written evidence submitted by BlackRock
1. BlackRock is one of the world's largest
publicly traded investment management firms. As at 31st March
2010, the assets under management of BlackRock were USD 3.36 trillion.
BlackRock is a premier provider of global investment management,
risk management and advisory services to institutional and retail
clients around the world. The firm manages assets on behalf of
institutions and individuals worldwide through a variety of equity,
fixed income, cash management and alternative investment products,
as well as the industry leading exchange-traded fund platform,
iShares.
2. BlackRock welcomes the opportunity to
comment on the proposals made in this consultation paper. In providing
our responses we are mindful of the fact that the Government's
paper does not deal with the proposals in great detail pending
further consultation. Our response is therefore also in general
terms given the lack of clarity which currently exists.
A Do the Government's proposals appropriately
assign roles and responsibilities between the different regulatory
institutions?
1. As currently drafted the proposals are
unclear as to whether asset managers doing business in the UK
would be prudentially regulated in the United Kingdom by the Prudential
Regulation Authority ("PRA") or by the Consumer Protection
and Markets Authority ("CPMA"). Our response below highlights
the concerns for asset managers of: (i) being dual-regulated by
the PRA in respect of prudential issues and by the CPMA in respect
of conduct issues; and (ii) being regulated by CPMA at the prudential
and conduct level.
2. Under the current proposals deposit-takers,
insurers and broker-dealers (or investment banks) are considered
to be carrying on prudential regulated activities and will therefore
be prudentially regulated and supervised by the PRA and supervised
by CPMA in respect of conduct-related issues. Whereas those firms
carrying on non-prudential regulated activities will be exclusively
supervised and regulated by the CPMA for both prudential and conduct
issues. Some asset managers may have entities within their group
in the United Kingdom which have permissions as a deposit-taker
for insurance business only (for example, life insurance entities
providing unit-linked policies without any mortality guarantees
to UK pension funds and other UK insurance companies which are
in the most material aspects similar to asset management businesses)
and/or entities which have permission to deal as principal for
limited purposes (for example, for purposes of managing corporate
cash or making seed capital investments in sponsored product).
It is unclear from the consultation whether these permissions
will bring some or all of asset management group entities in the
United Kingdom within the scope of prudential regulation by the
PRA and conduct regulation by the CPMA or whether it is intended
that these activities would be excluded from the scope of the
PRA.
3. The proposals indicate that the Financial
Policy Committee ("FPC") will be empowered to give directions
to the PRA (and the CPMA, if relevant) on the regulatory tools
that should be deployed in pursuit of macro-prudential policy,
and how they should be formulated or calculated. It seems most
likely that such directions would be relevant to the PRA and the
types of firms it regulates. Should asset managers be regulated
by the PRA, the concern is that such directions would be applied
to asset managers in the same way as they would be applied to
banks, insurers and broker-dealers, which would likely not be
appropriate given that asset managers do not engage in proprietary
trading and therefore have significantly different risk profiles
than these institutions. It will be important to ensure that,
if asset managers are to fall under PRA regulation, the implications
of the exercise of the PRA's prudential oversight is considered
in the context of the very different business model and risk profile
that asset managers pose and not with a "one-size fits all"
mindset with issues posed by the major banks and broker dealers.
4. If asset managers doing business in the
UK are to be regulated by a single regulator, the CPMA, it is
important that the CPMA is equipped with staff who have appropriate
expertise and skills to regulate and supervise asset management
businesses with both a retail and wholesale/institutional business,
not only at a conduct level, but also prudentially. A potential
solution to this issue is for the CPMA to have a "college
of expertise" to supervise asset managers at both a conduct
and prudential level separately from, for example, high street
independent financial advisers. The consultation itself acknowledges
that prudential regulation and conduct of business regulation
require different approaches and cultures and combining them in
the same organisation is difficult. The challenge will therefore
be to ensure that the CPMA can appropriately supervise and regulate
asset managers at a prudential level, given its remit of also
supervising and regulating institutions such as high street independent
financial advisers which have a significantly different prudential
profile.
B Will there be unintended consequences of
the Government's proposals for regulation on the prospects for
non-bank financial institutions?
1. Our concerns regarding the split between
the PRA and the CPMA for asset managers are set out above.
C To what extent will the regulatory and administrative
burden increase for those firms who now have to deal with two
regulators?
1. In our view, if asset managers are to
be subject to dual-regulation by both the PRA and the CPMA, the
regulatory and administrative burden and lack of clarity will
increase. The implications include:
— increased resource requirements in order
to deal with two regulators;
— the potential for both underlap or overlap
of regulatory oversight;
— lack of clarity around how supervisory
initiatives such as ARROW will operate. It will be important for
both regulators to have a joined up approach and efficiencies
for ARROW supervisory visits suggest that they should be conducted
together; and
— lack of clarity around which regulator
is responsible for supervision and enforcement of specific issues,
eg transaction reporting. On the basis of the current proposals,
it would seem that responsibility for enforcing systems and controls
failings will lie with the PRA (in respect of dual-regulated firms)
and therefore, a firm would have enforcement action from both
regulators to manage at the same time.
BlackRock intends responding more specifically
to HM Treasury's consultation paper concerning this current proposal.
September 2010
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