The three regulators-turned-consultants at Newgate Compliance, who have long been helping to 'onboard' new funds into the UK, talk to Chris Hamblin about their experiences and the new software system that helps them to monitor their clients' compliance efforts.

The three
regulators-turned-consultants at Newgate Compliance, who have long
been helping to 'onboard' new funds into the UK, talk to Chris
Hamblin about their experiences and the new software system that
helps them to monitor their clients' compliance efforts. Theirs
is a mixture of new technology and good old-fashioned regulatory
experience that goes back to the fabled days of the Investment
Management Regulatory Organisation.

 

Q1. First of all,
why have you named yourselves after a notorious Medieval prison?

 

A: (All laugh.)
Actually, we try to keep people out of prison. If you know
your history, Newgate was also a gate and that's why we chose it –
we are instrumental in helping people to come to London.

 

Q2. One of your
specialities is 'onboarding' funds and fund firms that come into the
UK. What are the pitfalls involved?

 

A: We've done
'onboarding' for over 500 firms, helping them through their
regulatory applications. Typically, the problem is that they get bad
advice and pay too much for it. You want to get someone who's done it
before. We've all had 10 years' regulatory experience apiece.

 

Firms also don't
leave themselves enough time to go through the process. It takes 6-9
months typically, especially at the moment. The FCA is taking 3
months just to allocate a case to a case officer. We concentrate on
getting the applications off quickly and then building the compliance
function [of the incoming fund] up in the meantime while we wait for
that.

 

The firms also don't
get too much tax advice at the start. This is crucial because they
have to decide on the fund structure – you have to know whether
you're going to have to set up a series of limited companies or not.
We refer them to our affiliates for tax advice and other things such
as prime broking. There's a network of different service-providers
out there when you're setting up a hedge fund. We point them in the
right direction.

 

We have in the past
seen firms trying to deal with the FCA on their own and being told to
go to a consultant! We were quite surprised the first time that
happened. The FCA returned the papers to the client and said “come
back to us another time.”

 

Q3. Why is
Newgate better than other consultancies in helping customers conquer
the pitfalls we've just discussed?

 

A: There's a number
of things that we do. We're very experienced. We're diligent. We've
got the knowledge to get their level of knowledge up very
quickly. We can size them up quickly as well – we always start with
a no-obligation chat and an hour's discussion will tell the tale. We
look at them with the eyes of regulators, which is what we were. We
all worked in the area where we decided whether firms could come into
the UK, specialising in the asset-manager, investment advisor
sectors.

 

Q4. 'Investment
advisor' is an American term. Are you particularly experienced at
guiding US firms into the UK?

 

A: (All) Oh yes
definitely. Lots of our clients come from the US and the large ones
typically set up small offices here.

 

Q5. What about
your new software offering? Is it fully automatic or is it 'software
meets consultants'?

 

A: It's
software-meets-consultants, basically. It's a two-fold platform. One
side is client-facing. It allows the clients to monitor their
compliance procedures and policies. They can get employees to submit
forms for gift requests etc. It has a repository area – the first
part of this is the document side, in which you can put compliance
manuals and documents about various compliance policies of the firm.
The second part is the library, in which the firm might put
information of interest, perhaps including an article we have written
about, say, the AIFMD. The final part of the GATEway is the calendar
side, the diary management part of it. It contains actions
outstanding for us, or FCA returns that they need to do – that sort
of thing.

 

The second side of
the platform is for us internally. Our work is managed on it. It
allows us to control things internally. If, say, Martin is ill for a
week, we can see everything he's done for the clients over the last 2
months and pick up his work where he left off.

 

Q:6 Is it totally
stand-alone software? I know that if you try to link it up to the
clients' systems, you're in a world of potential hurt, especially as
many of the typical clients' systems don't talk to one another.

 

A: That's very true!
It doesn't link up with the clients' systems. It's totally
stand-alone. There's a secured link online, so nobody can hack into
it.

 

Q7: Is it fairly
typical of the software that consultants use to help clients?

 

A: Yes but it's more
comprehensive than most. Some do a bit on the broker's side, some do
attestation letters – ours does every job in compliance. As a rough
guide, these jobs are:

(a) Compliance
monitoring – this is a series of questionnaires touching on
your gifts policy, or your approved persons policy or whatever. It
enables the firm to show the FCA that they have full oversight of
their compliance effort.

(b) Forms and
registers – so if an individual wants to do a personal
transaction, he notifies the compliance officer for approval and the
system builds up a register of all approvals and rejections.

(c) Documents
– FCA correspondence goes here.

(d) Library –
this contains training documents and the other things we've mentioned
already.

(e) Diarymanagement.

 

As the consultants,
we can then go in from the back end of the system and say “this is
overdue – it's time to do it,” or give the client other advice.

 

Q8: So your
system sits in the client's office and you use it to give advice. Do
you offer different depths of advice? In other words, do you give
'light touch' advice to some clients but really 'heavy touch' advice
to others who need it because they are totally inexperienced
in this country?

 

A: Our fee structure
allows for a light touch or a heavy touch. In fact, the IT system is
a free part of what we provide. Fees are solely dependent on the
level of service.

 

Q9: Have you ever
experienced, or do you expect to experience, the FCA having trouble
with a new fund firm and then coming to you and asking you to give it
information about that firm?

 

A: No, the FCA never
wants to involve third parties. We do help the client-firms with the
answers to their questions, though.

 

Q10: What, then,
is your unique selling-point? Why is Newgate good at helping clients
in comparison with other firms?

 

A: Our system is
new; and also I don't think anything else is as comprehensive. Many
consultants who are on 'high-level retainers' will go in and review
their files every 3 months. The way we work tends to be that people
come to us because they have specific problems. We help them with
their problem, and then a percentage of them go on to have us as
permanent consultants and sign up to our system.

 

Q11: Your
literature says that the size of firms that you serve ranges from $1
million in AuM (assets under management) to $15 billion in AuM. What
happens with the very large firms? Do they just ask you to help with
a small part of their operations?

 

A: Actually, the
size of AuM need not be a sign that the firm is huge. Some firms have
large AuM but their operations are scalable. A lot of them are just
doing bigger trades than others. With some organisationally big
firms, though, we just give their compliance departments advice and a
safety net, sometimes acting like a library. Or they might want us to
help them over a project or with an FCA visit. The technical side is
where we come into our own.

 

* Newgate
Compliance is to be found at www.newgatecompliance.com and on +44 (0)
207 947 4136.