Topic : FCA proposing changes to streamline decision-making
Date: 29th July 2021
Overview: The FCA is proposing changes to its decision-making process which will enable it to make faster and more effective decisions. This will help improve how the FCA tackles firms and individuals who do not meet the required standards.
The FCA is consulting on moving some decision-making from its Regulatory Decisions Committee (RDC) to its Authorisations, Supervision and Enforcement Divisions. This will give greater responsibility for decisions to senior members of FCA staff close to the matters.
Emily Shepperd, Executive Director of Authorisations said:
‘The proposed changes will allow us to be more efficient by making best use of the breadth of expertise across the FCA and by putting certain decisions back to the subject matter experts. As a result of that there will be greater accountability in those areas. The changes will help to increase the speed and reduce the regulatory costs of dealing with firms and individuals that fail to meet the FCA standards.
‘As part of our transformation we will continue to take a fresh approach to tackle firms and individuals who do not meet the required standards. As part of this, we aim to become a forward looking, proactive regulator – one that is tough, assertive, confident, decisive and agile.’
The RDC is a committee of the FCA Board. At present it takes certain decisions on behalf of the FCA. The consultation is proposing that certain decisions will now be made by FCA staff including:
- imposing a requirement on a firm or varying its permissions by limiting or removing certain types of business
- making a final decision in relation to a firm’s application for authorisation or an individual’s approval that has been challenged
- making a final decision to cancel a firm’s permissions because a firm does not meet the FCA’s regulatory requirements
- the decision to start civil and/or criminal proceedings
Topic : Fund managers falling short on assessing the value of their funds.
Date: 6th July 2021
Overview: A review of 18 fund managers between July 2020 and May 2021, covering different business models and sizes, found most had not implemented Assessments of Value (AoVs) arrangements that met FCA standards.
The FCA required that Authorised Fund Managers (AFMs) to carry out an AoV at least annually. This requirement was put in place after the Asset Management Market Study found evidence of weak demand-side pressure in the market for authorised funds, resulting in a lack of competition among fund providers on fees and charges.
The rules addressed this by requiring firms to assess whether fund fees are justified by the value provided to fund investors, by using a set of minimum considerations. Details of these assessments must be reported to investors together with a clear explanation of what action has been or will be taken if they find that the charges paid by investors in the funds are not justified.
When considering a fund’s performance, many firms did not consider what the fund should deliver given its investment policy, investment strategy and fees. Firms spent a disproportionate amount of time looking for savings in administration service charges that cost investors relatively little compared with the time spent reviewing the costs of asset management and distribution that typically cost investors much more.
The FCA expects all AFMs to consider these findings and use them to assess their AoV processes. Where necessary, they should make changes to address shortcomings. The FCA intend to review firms again within the next 12 to 18 months and will assess how well firms have reacted to feedback.
Topic: Guiding principles on design, delivery and disclosure of ESG and sustainable investment funds
Date: 19TH July 2021
Overview: The FCA have published a letter to the chairs of authorised fund managers setting out our expectations on the design, delivery and disclosure of environmental, social and governance (ESG) and sustainable investment funds. The FCA have received a high volume of applications for authorisation of funds with a sustainable focus. However, many of these applications are poor-quality and fall below our expectations. The FCA also expect clear and accurate ongoing disclosures to consumers where funds make ESG-related claims.
The FCA have therefore developed a set of guiding principles, informed by broad stakeholder liaison and consumer research, to help firms apply our existing rules. The guiding principles are there to ensure that any ESG-related claims are clear and not misleading, both at the time of application and on an ongoing basis, so that consumers can make informed choices.
The regulator will continue to scrutinise and challenge firms on their fund strategies and disclosures and to ensure that documentation submitted for authorisation meets their regulatory requirements.
The guiding principles are relevant where an FCA authorised investment fund pursues a responsible or sustainable investment strategy and claims to pursue sustainability characteristics, themes or outcomes. These principles are targeted at funds that make specific ESG-related claims, not those that integrate ESG considerations into mainstream investment processes.