Regulation  

Beware of passing on powers

Beware of passing on powers

The role of the authorised corporate director (ACD) is currently under scrutiny from the Financial Conduct Authority.

According to recent reports, a number of ACDs have been informed by the FCA that they should prepare for an industry investigation in the wake of the Woodford Equity Income fund debacle.

ACDs have, in recent years, been relatively free from FCA scrutiny – although they did play a minor role in the FCA’s studies into the fund and investment platforms sectors. 

As a result of the study, the FCA implemented new rules that strengthened the duty of fund managers to act in the best interest of their investors. 

But what about ACDs? What exactly is an ACD; what is their role and what should they be concentrating on in light of the FCA’s renewed interest?

What is an ACD?

An ACD is an authorised person within a corporate body given powers and duties by the FCA to operate a form of collective investment scheme called an open-ended investment company.

ACD functions may be kept in-house by investment houses. Alternatively, many more wealth managers and smaller boutique offerings have chosen to outsource these functions to external independent ACD providers. 

The ACD has a fiduciary role, and a regulatory obligation, to ensure that the fund is run in the best interests of the investors, ensuring that they are protected and treated fairly.

As an authorised person, ACDs are required to adhere to the FCA’s Principles for Business, and the rules set out in the collective investment schemes sourcebook of the FCA handbook.

The ACD’s responsibilities include – among many other things – dealing with the day-to-day operation of the OEIC, managing the OEIC’s investments, buying and selling the OEIC’s shares on demand, and pricing the OEIC’s shares based on the value of the OEIC’s assets.

Subject to restrictions, these responsibilities may be delegated to appropriate third parties, but overall regulatory responsibility for performance of all of the obligations remains with the ACD. 

On the hook

In the Neil Woodford saga, which has led to the suspension of the Woodford Equity Income fund, the ACD, Link Fund Solutions, delegated the management of the assets within the fund to Woodford Investment Management.

However, as WIM is not the authorised manager of the fund, Link Fund Solutions remains accountable to the FCA and remains on the hook for the operation of the fund. 

Mistakes that may have been made by WIM may therefore be directly attributable to Link Fund Solutions, and they may find themselves on the receiving end of FCA enforcement action.

This should not come as a surprise to anybody acting as an ACD. 

Key Points

  • ACDs are currently under scrutiny from the FCA
  • With the Woodford Equity Income fund, the ACD outsourced its responsibilities
  • In a similar situation, the then FSA censured an ACD for outsourcing its obligations

Back in November 2013, in its final notice to Capita Finance Managers Limited, the then Financial Services Authority made it quite clear that an ACD outsourcing functions (in that case the investment management) did not absolve them from the associated regulatory requirements.