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Dear CEO | Release Date: 20th May 2019

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

To access the original FCA document, click here.

Short Summary

The FCA has issued a letter to CEOs of principal firms in the investment management sector highlighting the key risks associated with their supervision of Appointed Representatives (ARs). The letter outlines findings from a multi-firm review which revealed significant shortcomings in principal firms’ oversight and control over ARs, and it sets forth expectations for compliance and risk management.

Key issues identified include principal firms not fully understanding their responsibilities, insufficiently assessing ARs’ activities, inadequate risk management frameworks, and poor governance arrangements. Many firms were found to allow ARs to operate outside their core expertise or without sufficient resources for effective oversight. Additionally, there were concerns about inadequate measures to manage conflicts of interest and ensure compliance with regulatory requirements.

The FCA expects principal firms to critically review their relationships with ARs and ensure that their control frameworks are robust enough to prevent market abuse and protect consumer interests. Firms are required to reassess their governance arrangements, risk frameworks, and the adequacy of their financial resources. The review should include ensuring that ARs’ activities align with the principal’s permissions and expertise, and that there is effective ongoing monitoring to ensure compliance with the FCA’s standards.

Key Take-Aways and Actions:

Principal firms must share this guidance with their boards and thoroughly assess their current arrangements with ARs to address any identified deficiencies. They should be prepared to terminate relationships with ARs if they cannot adequately manage the risks or ensure compliance with FCA regulations. The FCA plans further checks and will take action against firms that fail to meet their obligations, stressing the importance of immediate and thorough compliance to safeguard market integrity and consumer interests.

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