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General Issue Category
(Industry agnostic)

Disclosure Topics (Industry specific) for:
Asset Management & Custody Activities

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Selling Practices & Product Labeling

Transparent Information & Fair Advice for Customers

Asset managers have legal obligations and fiduciary duties related to record keeping, operating and marketing, disclosure requirements, and prohibition of fraudulent activities. Regulations surrounding the Asset Management & Custody Activities industry are intended to align the interests of companies and their clients and to limit conflicts of interest. This alignment, coupled with the fact that most asset managers earn fees based on the amount of assets under management, provides a significant incentive for companies to provide clients with strategies that match their risk-return profiles. Despite required disclosures, companies still face significant challenges in ensuring that clients understand the nature of risks taken in investment strategies. Failure to provide services that satisfy customer expectations may result in lengthy and costly litigation, diminished trust with clients, and lower sales as a result. Enhanced disclosure on procedures or programs to provide adequate, clear, and transparent information about products and services, the regulatory violation record of employees, and the amount of fines and settlements associated with professional integrity will provide investors with an advanced understanding of how well companies manage risks associated with this issue and whether they are able to preserve long-term value for shareholders.

Employee Engagement, Diversity & Inclusion

Employee Diversity & Inclusion

Asset management and custody activities companies face a high degree of competition for skilled employees. At the same time, the industry has a low level of diversity, especially among senior roles. In recent years, considerable media attention has been focused on cases of gender discrimination involving publicly listed companies in the industry. As the industry continues to undergo rapid innovation through the introduction of more complex financial products and computerized algorithmic and high-frequency trading, the ability of companies to attract and retain skilled employees will likely be increasingly material. By ensuring gender and racial diversity throughout the organization, companies are likely to expand their candidate pools, which could lower hiring costs and improve operational efficiency. Further, evidence suggests that diverse groups of employees at asset management companies may enhance the risk-return characteristics of investment portfolios. Enhanced disclosure regarding employee gender and racial/ethnic diversity, especially when provided by employee category, will allow shareholders to assess how companies in this industry are managing the associated risks and opportunities.

Product Design & Lifecycle Management

Incorporation of Environmental, Social, and Governance Factors in Investment Management & Advisory

Asset management and custody activities companies maintain a fiduciary responsibility to their clients. These companies must therefore consider and incorporate an analysis of all material information into investment decisions, including environmental, social, and governance (ESG) factors. The process of ESG incorporation involves consideration of ESG factors in valuation, modeling, portfolio construction, proxy voting, and engagement with investees and, as a result, in investment decision-making by asset and wealth managers. As the management and use of non-financial forms of capital increasingly contribute to market value, incorporation of ESG factors in analysis of investees has become more relevant. Research has established that a company’s management of certain ESG factors can materially impact both its accounting and market returns. Therefore, deep understanding of investees’ ESG performance, integration of ESG factors in valuation and modeling, as well as engagement with investees on sustainability issues allows asset managers to generate superior returns. On the other hand, asset management and custody activities companies that fail to consider these risks and opportunities in their investment management activities could see diminished investment returns in their portfolios which would lead to reduced performance fees. Over the long term, it could result in outflow of assets under management (AUM) resulting in the loss of market share and lower management fees.

Business Ethics

Business Ethics

The regulatory environment surrounding the Asset Management & Custody Activities industry continues to evolve both nationally and internationally. Companies are required to adhere to a complex and often inconsistent set of rules relating to performance and conduct as well as disclosure on issues including insider trading, clearing requirements in over-the-counter derivatives markets, and tax evasion. Asset management and custody activities companies are also subject to strict legal requirements as fiduciaries or custodians of their clients. Finally, in some jurisdictions, enhanced rewards for whistleblowers may lead to an increase in the number of complaints brought to regulators. Firms that are able to ensure regulatory compliance through robust internal controls will be better positioned to build trust with clients, leading to increased revenue, and to protect shareholder value by minimizing losses incurred as a result of legal proceedings.

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