The FCA Assures Firms About Asset Management Regulation

Megan Butler, Executive Director of Supervision at the Financial Conduct Authority (FCA) gave a speech at the end of September on how the FCA will work with the Asset Management Industry. She covered a lot of ground including the recently introduced Senior Managers and Certification Regime, the upcoming MiFID II, as well as the uncertainty of Brexit.  

The FCA’s Mission 

With 75% of households receiving or saving for pensions, and 11 million people invested in stocks and shares, asset management is central to the UK’s business and private sectors. Megan reflects how important the sector is, saying “we take a particular interest in corners of the industry that most affect wider society – which puts asset management squarely into the bracket of ‘sectors that we care deeply about’. 

However, in the FCA’s June Asset management market study, findings showed that currently, the industry is demonstrating a disconnect between price and performance, and the FCA is considering responses to the consultation paper now. FCA has also referred the investment consultancy sector to the Competition and Markets Authority (CMA), who will launch an investigation to find out whether investment consultants have incentives to compete for clients, whether conflicts impair quality of service and value for money and whether barriers to entry stifle competition. 

FCA creates new information hub 

Butler assures firms that the FCA are aware that market competition can be difficult due to the weight of regulation that firms must abide by. After approving 204 new firms in 2016, the FCA’s contact centre received 1,200 calls from investment managers requiring clarification on a number of issues. 

To resolve this confusion, and to ensure that investment firms know exactly where they stand with regards to authorisation, regulation and reporting, the FCA is currently working on setting up an Asset Management Authorisation Hub, designed to support newcomers to the market. 

The extension of the Senior Managers and Certification Regime 

Last year, the FCA rolled out the Senior Managers and Certification Regime (SMCR) which specifies good governance and personal accountability as being fundamental to the future of financial services.  

Butler reiterates the FCA’s recognition that FCA has a diverse portfolio of vastly different asset management services and the need to be flexible, whilst still remaining firm in their dealings with rogue firms. The FCA will be implementing a ‘core regime’ of basic requirements, as well as an ‘enhanced regime’ designed for larger and more complex businesses, so the regime is both proportionate and effective. 

MiFID II 

The new MiFID II legislation is intended to improve market cleanliness and efficiency, as well as to enhance transparency to retail clients on costs. Firms will be required to ensure their processes and controls are actively preventing market abuse, in addition to submitting Suspicious Transaction and Order Reports and applying for a Legal Entity Identifier (LEI). 

The FCA insists that potential market changes resulting from these regulation changes, and national events like Brexit, should not mean that essential business principles need to change and that whatever the outcome, the FCA are prepared to solve any challenges in order to support the global market. 

Overall, the objective of the FCA is not to whitewash the asset management industry into compliance but to encourage healthy business that benefits both firms and consumers. The FCA will continue to support both parties through conscientious regulation and consistent engagement with the industry. 

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