Regulation  

FCA warns authorised fund managers over non-compliance

FCA warns authorised fund managers over non-compliance

The Financial Conduct Authority has called for ‘host’ authorised fund management firms (AFMs) to improve their standards after it found weaknesses in governance structures, conflicts of interest management and operational controls.  

In a review published today (June 30), the FCA said while some firms were operating well, others did not meet its standards and would face enforcement if they did not up their game. 

Host AFMs are fund operators that delegate investment management to third party investment managers outside of their corporate group. 

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The FCA said it had mainly reviewed host AFMs but some of the findings were also applicable to their in-house counterparts.

All authorised funds in the UK are required to have an AFM, who is responsible for ensuring that the fund complies with the FCA's rules. 

The FCA found that some firms were referring to funds as if they were solely operated by delegate third-party investment managers or fund sponsors rather than themselves, and showed “a lack of focus on controlling the risk of harm” from investors exposed to inappropriate or poor value products.  

Sheldon Mills, executive director, consumers and competition at the FCA, said: “Authorised fund managers play an important role as fund operators and we want to ensure they contribute to a thriving investment management industry. 

“Our review indicates that some firms are not sufficiently meeting FCA standards and we want to see significant improvement in this area. 

“We expect firms to look at the key findings on governance structures, conflicts of interest, operational controls, and the other areas highlighted in our review and take action. We will take action if we find issues in firms’ responses to our findings.”

The FCA said it was also considering changing its rules.

Mills added: “Our focus on this sector will aim to ensure that the regulatory framework is in the right place to provide good value for investors balanced by appropriate protections, and we will consider whether we need to make changes to rules to supplement the work of this review and its findings.”

The FCA explained that firms which operate effectively typically are well capitalised and well-resourced, with senior management recognising and controlling the conflicts of interest inherent in the business model. 

The regulator said it will provide written feedback to all firms in the review and a small number will be required to undertake section 166 Skilled Person reviews to improve compliance. 

It plans to review the progress each firm has made in 12 to 18 months and firms may also be asked to hold additional capital to guard against the risks they have in their business. 

The regulator said it is conducting further work to identify whether changes are needed to the regulatory framework that firms operate under and stated that this could include rule changes. 

Last year, the City-watchdog warned that poor product assessment and conflicts of interest meant fund managers were not consistently delivering good value to retail investors