Asset Management Supervisory Strategy – 2020

The FCA yesterday (20 January 2020) released a Dear CEO letter to asset managers[1] and outlined the FCA’s view on the key risks of harm that they pose to their customers or the markets in which they operate. The FCA expects CEOs to consider whether their firm presents these risks and their strategies for mitigating them.

Mike Booth, Partner | Regulatory Solutions at MJ Hudson has very briefly summarised the supervisory priorities below:

  1. Liquidity: Has the fund got enough of it! Is there a mismatch between redemption terms and the underlying portfolios liquidity and are these risks being managed effectively?
  2. Governance: The FCA will carry out work in the first half of 2020 to evaluate the effectiveness of governance across the sector, focusing particularly on firms’ efforts to implement SMCR. Get ready!
  3. AMMS Remedies: The FCA will carry out work in the first half of 2020 to understand how effectively Authorised Fund Managers (“AFM”) have undertaken value assessments. They will seek evidence of meaningful challenge at AFM boards on proposals made by the executive – including on costs, fees and product design. Also, fund objectives neds to be clear, fair and not misleading and comply with the new rules issued last year.
  4. Product Governance: The FCA reminds us of the rules in the PROD Sourcebook and wishes to see products designed with the best interests of a specified target market in mind. They will focus their supervisory work in early 2020 around this area alongside governance.
  5. LIBOR transition: Firms should work on the basis that £LIBOR will cease from the start of 2022. Will you be ready?
  6. Operational resilience: Firms should be thinking about operational risk: technology, cyber and outsourcing mentioned as focus areas. See Consultation Paper and Thematic Review.
  7. Brexit: Are you ready for 31 January 2020 with or without a deal and do you understand what the transitional period means? See FCA webpage.

Please do get in touch if you would like to discuss further, or subscribe to our Regulatory Refreshment newsletter to stay up to date with any regulatory developments within the investment management community.

[1] FCA Note “Our asset management portfolio is comprised of FCA authorised firms that predominantly directly manage mainstream investment vehicles, or advise on mainstream investments, excluding wealth managers and financial advisers. Our alternatives portfolio is comprised of FCA authorised firms that predominately manage alternative investment vehicles (for example, hedge funds or private equity funds) or alternatives assets directly, or advise on these types of investments or investment vehicles. We recognise that many of the issues within the sector will be common to both types of firms and that business models will often overlap.”