On the 1st of March 2024, the Financial Conduct Authority (“FCA”) wrote to CEOs in the asset management and alternatives sector with an update to its supervisory approach. We know that dear CEO letters are routine form of communication from the FCA and are there to highlight specific areas of concern or provide updates on work the FCA has been doing. Firms should be considering the contents of these letters at board level and implementing changes as necessary. A month on since its publication, what has your firm done in response?
We summarise the main focus areas of the letter below. In the letter, the FCA also refer to the new UK AIFMD regime bringing into focus the post-Brexit work it is doing. We have been following the new UK AIFMD regime closely, it is still early on in its development, and we expect the consultation paper to be published later this year. They also highlight the implementation of Sustainability Disclosure Requirements (“SDR”) for sustainability/ESG related products and services. Firms caught by this should take note of this implementation reminder from the FCA.
Governance and Risk Management
FCA continuing to highlight their ongoing focus on evaluating the efficiency of firms’ governance arrangements, allocating responsibilities for risks and risk mitigation, and ensuring good management information (“MI”) facilitates informed decision-making. We would advise actions taken to demonstrate consideration of this is to ensure that Boards have discussed the content of the CEO letter (keeping record of this in board minutes), risk management responsibilities are clearly allocated, and to take improvement action where firms see necessary.
Valuation of Private Assets
FCA confirms that they will be conducting a multi-firm review to assess private asset valuation procedures, including individual accountability and governance arrangements.
Assessment of Value (“AoV”)
For firms caught by the Consumer Duty. FCA had conducted a multi-firm review last year. The FCA want the AoV (or price and value assessment) to not be seen as a check-box exercise, but rather as an authentic evaluation that will have an impact on customer outcomes. In 2024, the FCA will be carrying out a joint multi-firm review to assess the price and value delivered to unit-linked funds. Even if firms are not caught by the Consumer Duty, it is advisable that all firms consider their price and value assessment processes ensuring that the price and value gained are proportionate and justifiable.
Change Management
FCA acknowledges the significant regulatory changes (post-Brexit) that are occurring now and in the future that will affect the sector and the difficulties they bring, especially in the current market. Many firms are struggling to attract/maintain AuM. FCA are concerned firms may not be adequately resourced to handle regulatory change in addition to any of the firm’s strategic developments. As a result, FCA will be engaging with firms to assess their governance and resourcing of change programmes. It is advisable for firms to consider assessing their resources and ability to implement change in response to regulatory change, and act where required. The FCA could engage with your firm, so be prepared.
Financial Crime and AML
A big focus area that remains for the FCA is a firm’s response to and mitigation of financial crime. FCA continue to reiterate their expectations around adequate systems and controls, processes, policies, and procedures that are clearly followed. In its recent 2024/25 Business Plan, the FCA reiterates this focus on combatting financial crime, so firms must ensure they are bolstering their defences.
Dear CEO letters can be quickly discarded or forgotten about in the course of business. If this sounds like your firm, be warned that this could potentially be a costly oversight. Inaction where the FCA has written to your firm directly clearly outlining its expectations, will not be viewed lightly should failures be identified. At Complyport, we understand that senior management may not be able to keep up with the various FCA publications and letters. Our experts are on hand to guide firms and advise them on the actions needed to stay out of the FCA’s firing line.
How Complyport Can Help,
Is your firm aligned with the latest FCA expectations outlined in the recent CEO letter? At Complyport, we understand the challenges of interpreting and implementing regulatory updates. Our team of experts can provide you with tailored guidance and support to ensure compliance with the FCA’s directives. From governance and risk management, to financial crime and AML, we offer solutions to address the key areas highlighted in the CEO letter. Whether it’s enhancing governance arrangements, improving valuation procedures for private assets, conducting robust price and value assessments, managing regulatory change, or strengthening financial crime prevention measures, we have the expertise to help your firm meet its regulatory obligations effectively
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About Complyport
Complyport is a market-leading consulting firm supporting the UK financial services industry for over 22 years. We specialise in providing Governance, Risk and Compliance services to support the regulated financial services industry to raise standards and thrive.
Complyport can assist with the preparation of a GAP analysis and impact assessment on the investment firm’s capital adequacy and risk management framework of the Company under the regulatory framework.
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