The Financial Conduct Authority (FCA) has issued a stinging criticism of asset managers’ approach to liquidity management, governance, value for money and investing in adequate technology.
In a letter addressed to chief executives, FCA director of wholesale supervision Marc Teasdale flagged “key risks of harm” the regulator sees asset managers posing to customers and markets and demanded appropriate action be taken.
Teasdale said: “Overall standards of governance, particularly at the level of the regulated entity, generally fall below our expectations. Funds offered to retail investors in the UK do not consistently deliver good value, frequently due to failure to identify and manage conflicts of interest.
“Inadequate investment in technology and operational resilience has led to deficient systems which could cause harm to market integrity or loss of sensitive data.”
Teasdale highlighted liquidity management in open-ended funds as a “central responsibility” for an authorised fund manager, or authorised corporate director (ACD). He said liquidity remains their responsibility even if they delegate fund management to a third party.
It comes after the suspension and subsequent closure of the Woodford Equity Income fund which had Link Fund Solutions as its ACD. The regulator is probing the relationship between the two parties as well as the general role of external ACDs.
The letter also warned asset managers over their board governance, drawing attention to the senior managers and certification regime (SMCR) which was extended to asset and wealth managers on 9 December.
“We expect you to have refreshed your approach to governance and taken the necessary steps to improve it in line with SMCR requirements. Lines of accountability and responsibility for senior management functions (SMFs) must be clear.
“The SMCR should not be treated as a discrete compliance project; rather, it is an opportunity to deliver high standards of governance.”
The regulator also said it would closely monitor asset managers’ efforts on conducting value assessments and the appointment of independent directors ACD boards.
It said it would continue to take “robust action” where funds deliver poor value as was the case with the £1.9m fine issued to Janus Henderson in November over closet trackers.
The letter also said asset managers that have a greater risk of causing harm from technology and cyber risk are now subject to proactive technology reviews.
