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FCA 2015/16 Business Plan: Impact for Asset Managers

  • United Kingdom
  • Financial institutions

31-03-2015

The Financial Conduct Authority (FCA) published its 2015/16 Business Plan on 24 March 2015. The FCA also confirmed the creation of two new divisions that would be responsible for its supervisory and authorisations work and identified seven areas of forward-looking focus.

The Business Plan addresses various areas but the following, in our view, represent the main areas of impact for asset managers:

Post-authorisation review of funds and segregated mandates

The FCA has announced a 'post-authorisation' review of authorised funds and segregated mandates.

The review will look at funds which have been launched to see whether they are investing and performing in the way in which the fund has been described in the marketing and scheme documentation delivered to investors. This is likely to focus on factsheets, KIIDs and prospectuses as well as more generic marketing.

It is also likely to involve re-visiting the information which was provided to the FCA as part of the authorisation process, including model portfolios and answers to questions raised by the FCA. It is less clear how this will apply to segregated mandates as these are not subject to an FCA authorisation process. We assume that the FCA will at least ask to see marketing materials and terms and conditions, and seek evidence that the agreed mandate has been complied with.

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Asset management market study

The FCA has announced a market study on asset management changes. It is not yet clear what that scope will be but it will include changes paid by the investors and factors which drive those changes. The FCA will set out its concerns in a terms of reference document that will be published when the study is formally launched later this year.

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Culture review

The FCA will conduct a new thematic review on whether culture change programmes are driving the right behaviour. Although the FCA refers specifically to retail and wholesale banking, this is billed as a cross-sector review.

There are points which the FCA notes will be relevant to all all firms (including asset managers) in framing governance programmes. In this respect, the FCA notes a focus on middle management including policies around remuneration, hiring, performance management and promotion decisions, as well the internal reporting of concerns, levels of responsibility the first line takes for the right outcomes, and autonomy and empowerment of key control functions.

The FCA also notes its continuing focus on individual accountability, noting the following considerations: how a board engages in conduct issues including how it probes high return products or business lines; whether it understands strategies for cross-selling products; how growth is obtained; and whether products are being sold for the customer segments they are designed for.

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Inducements and conflicts of interest

Following guidance on inducements and conflicts of interest relating to retail investment advice published in January 2014, the FCA has announced that it will assess firms’ practices in this area. This will inform its consultation on Handbook changes needed to implement MiFID II – including changes to strengthen the inducements rules. Depending on the scope of an asset manager’s business, this may have a direct effect, if not an indirect effect.

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Emerging distribution models

The FCA has announced that it will undertake a market study into non-advised sales of investment and protection products. It wants to see how consumers behave when making their own investment decisions and how firms support consumers in choosing products that are suitable for their circumstances.

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IT resilience and risk at board level (continued from last year)

The FCA has highlighted that its ongoing programme of work includes working with the PRA and Bank of England on the visibility of IT resilience and risks at board level, and with Treasury and regulatory partners on addressing cyber risk.

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Unfair contract terms (continued from last year)

The FCA has highlighted its ongoing work on unfair contract terms, noting that this year unfair contract terms will come into sharper focus as the Consumer Rights Act is expected to come into force on 1 October 2015. Part 2 of the Act deals with unfair contract terms in a wide range of sectors, including financial services, and will widen the scope for the assessment of fairness.

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Systems and controls for preventing financial crime

The FCA indicates that it will continue to focus on both anti-money laundering (including terrorist financing and sanctions) and anti-bribery and corruption measures, as these are the areas in which it considers it can deliver the most value. It will also maintain its focus on fraud that affects consumers.

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Implementation of EU law and domestic measures

The FCA notes its implementation of various measures. The following are particularly relevant for asset managers and will require changes to documentation, policies and procedures:

  • MiFID II
  • Market Abuse Regulation
  • PRIIPS
  • Benchmark Regulation
  • Insurance Mediation Directive 2
  • Fourth Anti-Money Laundering Directive.

Amongst the more important measures noted are the further changes to the distribution rules in CASS to tie in with the proposed changes to the Special Administration Regime for Investment Banks.

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