Dear Chief Executive | Release Date: 22nd January 2020

To read a longer summary of this Dear Chief Executive, click here.

To access the original FCA document, click here.

Short Summary

The FCA’s letter to CEOs of asset management firms outlines the supervision strategy, highlighting key risks and expectations to ensure the protection and growth of client capital. The agency stresses that overall governance standards across the sector are often below expected levels, with significant concerns around the management of conflicts of interest, technological resilience, and investment in systems. These deficiencies pose risks of market abuse, financial crime, and potential harm to market integrity or data loss.

The FCA identifies poor value funds offered to retail investors and inadequate liquidity management in funds as primary risks. These could lead to consumer exposure to unsuitable investment products or levels of risk, especially where high-risk alternative investments are accessible to less-sophisticated investors. The letter emphasises the necessity of robust systems and controls to safeguard client money and custody assets, adhering to the Client Assets Sourcebook (CASS).

Firms are expected to manage market abuse risks effectively and ensure that their governance frameworks are robust enough to oversee the firm’s operations transparently and fairly. The FCA plans to review firms’ adherence to governance standards and liquidity management expectations, particularly following recent policy publications.

Key Take-aways and Actions:

Asset management firms must review their governance structures, systems, and controls to align with FCA expectations and regulatory requirements. They should address any identified risks in their operations, particularly those related to conflicts of interest, liquidity management, and technological resilience. Firms should prepare to demonstrate their compliance strategies and operational controls to the FCA, especially in forthcoming reviews or inspections.