The Financial Conduct Authority is not requiring Fundsmith to take further action after conducting an independent review of its business activities, Portfolio Adviser has learned.
Terry Smith’s eponymous boutique was among a handful of firms served with a section 166 notice by the City watchdog in the first quarter, according to reports.
The review is carried out by a ‘skilled person’, such as one of the ‘Big Four’ accountants or a law firm, and can be triggered by the FCA requesting further information about elements of a regulated firm’s activities, which are a cause for concern or require further analysis. This includes governance, controls or risk management assessments.
Portfolio Adviser now understands Fundsmith has been given a draft report following the section 166 review. It contains various recommendations, but the firm has not been instructed to take any further action.
A Fundsmith spokesperson told Portfolio Adviser: “We have an open and constructive dialogue with our regulators, and we embrace any steps recommended to improve our business, enhance the Fundsmith brand and benefit our customers.”
The FCA declined to comment.
It is still unclear what triggered the review or what the recommendations to Fundsmith entail.
During the second quarter, eight individuals at the firm were bumped up to partner level. The slew of promotions, which included CFO Paul Mainwaring and Smithson Investment Trust portfolio manager Simon Barnard, was unusually high, with only a handful joining the fund group’s senior ranks in 2019 and 2020.
Fundsmith generated £57.7m in profits for 2021, with Smith personally netting a £35.7m payout. But it is unlikely to match last year’s performance, as its funds bear the brunt of the shift away from growth stocks.
Fundsmith Equity, Smith’s flagship vehicle, suffered £622m of outflows in May, its largest monthly outflow on record. Year-to-date, the £22.8bn fund has lost 17.2%, while the average IA Global fund is down 13.6%.
See also: Fundsmith Equity retains Square Mile rating despite cloud of section 166 review
