The Financial Conduct Authority (FCA) published a pivotal review on smaller asset managers and alternatives firms managing under £1 billion in assets. The message is clear: robust governance, client-centric design and regulatory foresight are essential for sustainable growth in an evolving investment landscape.
Whether you’re an emerging asset manager or an established boutique firm, this review serves both as a warning and a roadmap.
Purpose of the Review: Elevating Standards, Protecting Investors
The FCA’s review was part of its Alternatives Supervisory Strategy, targeting around 1,000 small and mid-sized firms managing over £220 billion in assets. These firms play a vital role in the UK’s investment ecosystem, yet poor practices within this segment can cause significant harm to both retail and professional clients.
The review focused on three critical areas:
- High-Risk Investments (HRIs): Are firms promoting complex products responsibly?
- Conflicts of Interest: Are firms identifying and managing conflicts transparently?
- Consumer Duty: Are firms delivering good client outcomes throughout the product lifecycle?
FCA Findings
- High-Risk Investments: Governance Must Be More Than Superficial
The FCA found that while many firms understand HRI categorisation rules, fewer have embedded robust systems to ensure suitability, targeting and promotion align with these requirements.
The Challenge: Some firms promoted high-risk products to clients without adequate checks on risk appetite or financial sophistication.
Best Practice: Leading firms employed detailed client profiling, tailored risk warnings and review cycles to control the marketing and distribution of HRIs effectively.
Regulatory Insight: If your product is high-risk, your promotion must reflect rigour, transparency and precision. Targeted communication builds trust and reinforces your credibility.
- Conflicts of Interest: The Invisible Risk That Undermines Trust
While some firms had solid frameworks in place, others were significantly underprepared. The FCA highlighted a recurring issue: overlapping roles in governance, sales and investment decisions, with no documentation or controls in place.
FCA Red Flag: Several firms failed to identify or address key conflicts, leaving clients exposed and damaging their own credibility. These practices fall short of SYSC 10.1 requirements.
Best Practice: Maintaining up-to-date conflicts register, conducting regular reviews and disclosing conflicts transparently are now minimum expectations.
Regulatory Insight: Transparency is not just a compliance issue, it is a brand value. Clients value clarity in how decisions are made and governed.
- Consumer Duty: A New Era of Accountability
The FCA’s Consumer Duty (PRIN 2A), in effect since July 2023, mandates firms to demonstrate how they ensure good outcomes at every stage of the client journey.
The Reality: While most firms had begun implementing the Duty, many treated it as a checklist exercise rather than a transformative change.
Best Practice: Top-performing firms re-engineered onboarding processes, refined pricing strategies, simplified communications and established continuous outcome monitoring systems.
Regulatory Insight: Consumer Duty is not just regulation, it’s your opportunity to build standout client experiences. Align your disclosures, messaging and support channels with actual client needs.
Why It Matters: Reputation, Growth, and Regulatory Relationships
This review extends beyond basic compliance, as it reflects the FCA’s focus on strengthening the overall investment sector through governance excellence and client-centricity.
Firms that scored well demonstrated:
- Mature risk governance
- Clear accountability lines
- Customer-focused strategy
Firms that did not? They faced FCA interventions, regulatory scrutiny and reputational risk. Firms that proactively elevate standards can expect smoother supervision and enhanced client confidence.
3 Key Steps for Your Firm
- Reassess Client Segmentation and Product Governance
Ensure your offerings are suitable for your target market. Communications must be clear, fair and not misleading, in accordance with COBS 4. - Audit Your Conflicts Register and Governance Structures
Address any dual roles or incentive models that may compromise trust. Document, disclose and revise where necessary. - Elevate Your Consumer Duty Strategy
This is not a one-off task. Embed the Duty in every operational decision, from product design to post-sale service.
How Complyport Can Help
Complyport supports asset managers in aligning with the FCA’s evolving expectations by delivering expert-led, tailored compliance solutions. Our services are designed to enhance your regulatory resilience and operational integrity across key areas highlighted in the FCA’s review. Our services include:
- Compliance Health Checks: A comprehensive diagnostic of your firm’s compliance framework to identify gaps, assess regulatory alignment and prioritise areas for improvement.
- SM&CR Governance Reviews: Evaluation of your Senior Managers & Certification Regime implementation to ensure clear accountability, effective oversight and alignment with FCA requirements.
- Consumer Duty Strategy Workshops: Interactive sessions designed to help you embed the Consumer Duty into your business model.
- High-Risk Investment Governance Reviews: Targeted assessments of your firm’s approach to categorising, approving and marketing high-risk products.
- Conflicts of Interest Framework Enhancements: Review and optimisation of your conflicts of interest identification, documentation, and mitigation processes in line with SYSC 10.
Contact Complyport today to book a meeting with one of our Subject Matter Experts and take the next step towards regulatory excellence.
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