Topic : FCA Review: Authorised Fund Management Firms
Date : 30th June 2021
Overview: FCA Review finds weaknesses in some ‘host’ Authorised Fund Management Firms’ Governance and Operations
Following a review on a number of firms, the FCA has called for so-called ‘host’ Authorised Managers (AFMs) to improve their standards.
Host AFMs are fund operators that delegate investment management to third party investment managers outside of their corporate group.
The FCA found some firms to have weaknesses in
- governance structures.
- conflicts of interest management; and
- operational controls.
The FCA also found examples of firms referring to funds as if they were solely operated by delegate third-party investment managers or fund sponsors rather than themselves, and a lack of focus on controlling the risk of harm from investors exposed to inappropriate or poor value products.
The review focussed on host AFMs but some of the findings are also applicable to in-house AFMs.
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.
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.”
All authorised funds in the UK are required to have an AFM, who is responsible for ensuring that the fund complies with the FCA rules. The FCA noted that firms which operate effectively typically are well capitalised and well-resourced, with effective senior management recognising and controlling the conflicts of interest inherent in the business model.
The FCA is also conducting further work to identify whether changes are needed to the regulatory framework that firms operate under. This could include rule changes.
Topic: Market Analysis: Crypto Assets
Date: 17th June 2021.
Overview: The FCA has issued a Research Paper which found that in the past year:
- Ownership and Awareness of Crypto Assets has moderately increased; and
- Consumer attitude has softened in terms of Crypto Assets as an asset class.
- The Statistics referred to in the Paper include:
- 3 million individuals hold a form of Crypto Assets (compared with 1.9 million in 2020).
- 78% of the adult populations are aware of Crypto Assets (compared with 73% in 2020).
- 38% of Crypto Asset holders regard them as a high-risk gamble (compared with 47% in 2020).
Enthusiasm for Crypto Assets is growing with over half of Crypto Asset holders describing their experience as positive and are likely to buy more (rising from 41% to 53%). Fewer people also regret having bought cryptocurrencies, down from 15% to 11%.
Approximately 10% of individuals who had heard of cryptocurrency said they are aware of consumer warnings on the FCA website. Of these, 43% said they were discouraged from buying Crypto. Most consumers recognise that crypto investments are not protected, although 12% of Crypto Assets holders incorrectly believed they were protected.
Sheldon Mills, FCA’s Executive Director, Consumers and Competition said:
“The research highlights increased interest in cryptoassets among UK customers. The market has continued to grow, and some investors have benefitted as prices have risen. However, it is important for customers to understand that because these products are largely unregulated that if something goes wrong they are unlikely to have access to the FSCS or the Financial Ombudsman Service. If consumers invest in these types of products, they should be prepared to lose all their money.”