Fri, Nov 6, 2015
Malin Nilsson, Director at Duff & Phelps’ Kinetic Partners division in the Channel Islands wrote this article for BL Magazine in which she explains how regulatory risks can be minimized following private equity investment, mergers and acquisitions.
Fiduciary firms, including many fund services providers (FSPs), have recently seen increasing levels of private equity (PE) investment and consolidation. Completing robust regulatory due diligence prior to a transaction is key to identifying potential weaknesses within the target, but the challenges following a transaction are often not as widely reported on. These challenges may have a negative impact on the success of the firm, unless they are effectively identified, managed and implemented. Here we address the key regulatory risk areas that firms typically face post-transaction, and the practical considerations for firms to achieve the intended commercial returns.
1. Post-transaction plan
The lead-up to any transaction can be intense and establishing a post-transaction plan may not seem a priority at the time. But it is key to establishing confidence that the new firm will be able to deliver on the objectives of the transaction. Key areas for consideration:
2. Roles and responsibilities
Without establishing governance, reporting and decision-making structures, it’s difficult to implement the post-transaction plan. Key areas for consideration:
3. Retaining employees
An FSP’s success relies on its employees. Any period of change can result in an unsettled and distracted workforce. This may in turn affect employees’ decisions and behaviors, as well as creating controls gaps in regulatory monitoring activities, which may lead to regulatory breaches and commercial risk. Staff turnover in the compliance team can be particularly disruptive. Key areas for consideration:
4. The regulatory risks of technology and operations
While we focus here on regulatory risks, the dependencies that exist between regulatory, IT and operational aspects are many. A careful assessment of dependencies must be undertaken to lay the foundations for an effective compliance infrastructure. Key areas for consideration:
Managing regulatory risks from the outset is paramount to unlocking the value from the transaction, as well as maximizing efficiency in the future. The period after a transaction is an opportunity to reduce regulatory risks, implement compliance improvements, drive a compliance culture from the top and develop control frameworks that will see the new firm through its future growth plans.
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