On January 20, the Financial Conduct Authority (FCA) published a letter to the CEOs of asset management firms to outline their view of the key risks of harm to the customers or markets in which they operate (the Letter). The FCA defines asset management firms as firms that predominately manage mainstream investment vehicles, excluding wealth managers and financial advisers.
In the Letter, the FCA outlined the following supervisory priorities:
- Liquidity management: The FCA warned that “ensuring effective liquidity management in funds is a central responsibility for any Authorized Fund Manager (AFM).” (While not referencing it directly, this may be a response to the issues with the Woodford Equity Income Fund, which the FCA has previously addressed in this letter and this policy statement. It also may be a response to recent concerns about the promotion of mini-bonds to retail investors, which resulted in this temporary product intervention);
- Firms’ governance: The Senior Managers & Certification Regime (SM&CR) was expanded to asset managers on December 9, 2019 (for more information please see the December 13 edition of Corporate & Financial Weekly Digest). In the Letter, the FCA stated that work is planned “in the first half of 2020 to evaluate the effectiveness of governance across the sector,” including the implementation of SM&CR;
- Asset Management Market Study (AMMS) remedies: The AMMS was published in 2017 (for more information please see the February 15 edition of Corporate & Financial Weekly Digest). One outcome of the AMMS was to require firms to conduct “value assessments.” In the Letter, the FCA stated that work is planned for the first half of 2020 to determine if these assessments are being done effectively;
- Product governance: The FCA noted the product governance requirements introduced by the revised Markets in Financial Instruments Directive (MiFID II), and explained that work in early 2020 will assess how effectively these new product governance provisions have been implemented. They also will assess whether Authorized Corporate Directors (ACDs), to whom AFMs can delegate fund management responsibilities, are undertaking their responsibilities effectively;
- LIBOR transition: The FCA is generally concerned that firms are not preparing to stop using the London Inter-bank Offered Rate (LIBOR) by the start of 2022 (for more information please see the March 1 edition of Corporate & Financial Weekly Digest), and anticipate issuing “further communications on our specific expectations for LIBOR transition in due course;”
- Operational resilience: In the Letter, the FCA told asset management firms to expect more work on operational resilience in 2020 (for more information please see the January 17 edition of Corporate & Financial Weekly Digest); and
- EU withdrawal: In the Letter, the FCA drew attention to the updated Brexit website, and noted that firms should be preparing for the end of the implementation period on January 1, 2021.
The Letter is available here.