Dear CEO | Release Date: 9th August 2022

To read a longer summary of this Dear CEO letter, click here.

To access the original FCA document, click here.

Short Summary

The FCA’s letter to CEOs in the alternative investment sector outlines the updated supervisory strategy and highlights key areas of focus for firms within this diverse and critical segment of the UK economy. Recognising the evolving nature of markets and investor needs, the FCA emphasises the ongoing importance of alternative asset managers acting in the best interests of their customers to protect and grow capital effectively.

Given the diversity within the Alternatives portfolio, which includes global hedge funds, private equity firms, and smaller providers, the FCA acknowledges that not all discussed issues may apply universally. Firms are advised to evaluate which aspects are relevant and to discuss these at the board or executive level to align with FCA expectations and regulatory requirements.

The letter underscores the sector’s resilience amid significant challenges like the COVID-19 pandemic, Brexit, and the cessation of LIBOR, noting that many risks identified in early 2020 remain pertinent. The FCA’s supervisory priorities for the sector include integrity of markets, addressing ESG (Environmental, Social, and Governance) considerations, and focusing on consumer needs. Firms are encouraged to support these initiatives through actions and culture that enhance market competition and the UK’s global financial standing.

Firms must ensure they adequately address potential risks and comply with FCA requirements, particularly in consumer protection for less experienced investors who might be exposed to inappropriate risk levels. The emphasis is also on the correct classification and treatment of investors to avoid depriving them of necessary protections.

Key Take-aways for Affected Readers:

Firms should review their business models and consumer interaction strategies to ensure compliance with FCA standards, particularly in risk management and consumer protection. Regular assessments should be made to align practices with the evolving regulatory landscape, especially concerning ESG and market integrity. The FCA expects firms to proactively manage and mitigate risks, maintaining open communication with the regulator to address any strategic issues promptly.