How to continue meeting FCA governance requirements

• Reviewing the appropriateness of all financial instruments for retail investors.

• Analysing information gathered and undertake sufficient research and due diligence before including specific financial instruments into the firm’s investment portfolios.

• Developing a range of risk/volatility target portfolios for income and growth and establish benchmarks for each.

• Identifying when portfolios require de-risking or full off risk of the assets or where ‘hedging’ should be applied.

As well as maintaining performance standards in accordance with all aspects of the role, and providing regular KPI/MI to the investment committee, an investment manager must maintain Fit and Proper (FIT) status and evidence competent status as defined by FCA and the firm.

Firm's governance

We have looked at individuals so far, but what about governance requirements at firm level? 

A key process for discretionary management firms is the Internal Capital Adequacy Assessment Process (ICAAP).

A firm must, among other things, regularly assess the amount of internal capital it considers adequate to cover all the risks to which it is exposed within the context of its overall risk management framework.

It is this process that is known as the Internal Capital Adequacy Assessment Process (ICAAP).

Firms do not actually have to submit their ICAAP to the FCA, but they must regularly report that it is being undertaken.

One of the main platforms for demonstrating Governance is the Investment Management Committee (IMC) whose importance should not be under-estimated.

The investment committee’s role is to provide scrutiny.

A key process for discretionary management firms is the Internal Capital Adequacy Assessment Process (ICAAP).

It is there to scrutinise the firm’s investment processes and ensure they are fit for purpose. 

The investment committee function is key to ensuring that client investment outcomes can be met and that all investment recommendations meet the test of “suitability”.

An investment committee should undertake a review of different types of investments (financial instruments) a firm intends to distribute to its (target) clients.

They should also confirm the basis of their selection, the type of customer these have been designed for (i.e. retail clients and whether there are any restrictions/limitations), how these are built within the firm’s sales process, how advisers are trained and the way in which these are distributed.

All these areas will demonstrate compliance with Prod, which is ultimately about firms understanding the customers they deal with, or target, and having knowledge of the different types of investments/products that may be appropriate for them. 

The format and make-up of the committee is vital in order to ensure the governance expectations are delivered.

Each member of the committee will abide by the general ‘principles for approved persons’ and ensure in the role they are: