Dear CEO | Release Date: 22nd January 2020
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 of alternative investment firms outlines the key risks these firms pose to their customers and the markets, emphasising the importance of firm strategies to mitigate these risks. The letter identifies significant potential harms including the risk of customers being exposed to sub-standard benchmarks due to poor governance, potential market disruption from inadequate management of benchmark cessation or recalibration, and the risk of customers facing excessive fees and charges due to limited competition or complex licensing arrangements.
The FCA stresses the need for firms to maintain high governance standards to ensure the quality of benchmarks, which should include robust input data controls and market abuse systems. The letter also highlights the importance of transparency in benchmark statements and policies concerning recalculations and cessations, ensuring these are clear and meet user needs.
Additionally, firms are expected to manage third-party risks, particularly those related to outsourcing critical services, which necessitates stringent oversight to maintain operational resilience. The letter warns that inadequate controls could lead to operational disruptions or financial losses.
Key Take-aways and Actions for Affected Readers:
Firms are urged to review and enhance their governance structures and operational controls to prevent the harms outlined. They should ensure transparent communication with customers regarding benchmarks and actively manage any outsourcing arrangements. The FCA plans to conduct reviews and provide feedback, and firms must be prepared to demonstrate compliance and effective risk management strategies. This includes being ready to address any issues identified during FCA assessments or feedback sessions.