Update on International Funds Legislation | March 19, 2024
The Financial Conduct Authority (FCA) has announced its supervisory priorities for asset managers in 2024, focusing on enhancing governance arrangements, ensuring robust valuations of private assets, and fully implementing the Consumer Duty requirements.
In a "Dear CEO" letter, the FCA has outlined its focus for the year, emphasising the need for asset managers to modernise their regulation by streamlining requirements and simplifying reporting. This modernisation aims to support better governance through clearer organisational rules and encourages new and growing firms in the sector.
One of the key areas of concern for the FCA is the effectiveness of asset managers' governance arrangements, oversight by governance bodies, and management information about identified risks. Firms are encouraged to proactively tackle issues instead of waiting for FCA intervention.
Another priority is the valuation of private assets. The FCA has expressed ongoing attention to ensuring reliable valuations and controls in investment firms managing such assets, although explicit details are limited. The emphasis on transparency and market cleanliness suggests that this area will remain a focus.
The FCA is also focused on the implementation of the Consumer Duty, aiming to ensure firms deliver good consumer outcomes. This includes engagement with firms on governance to embed Consumer Duty principles into internal controls and compliance frameworks. Firms are expected to share relevant information with each other when in the same distribution chain to quickly address issues and prevent consumer harm.
The FCA has taken stock of the Consumer Duty implementation and published the results of a second survey of firms carried out in November 2023. The regulator has welcomed improvements in delivering better outcomes for firms' retail customers since the duty came into force in July 2023. However, it has identified gaps in monitoring data as requiring attention.
Asset managers who experience problems with implementing the Consumer Duty for closed products are expected to communicate with the FCA promptly. Firms must show that their products offer fair value to customers and must be able to evidence that they are delivering good outcomes for consumers and address any gaps in customer data.
The FCA has prioritised reviewing valuation practices for private assets and will conduct a multi-firm review. The regulator has also expressed concern about whether asset managers have sufficient compliance resources to deal with the high volume of significant business and regulatory change in 2024.
The FCA's other areas of focus include setting and testing higher standards, reducing and preventing serious harm, supporting innovation, promoting competition, and modernising the funds authorisation process. The regulator has reminded firms of the four consumer outcomes required by the Consumer Duty.
In sum, the FCA’s 2024 supervisory priorities for asset managers emphasise strengthening governance frameworks, ensuring transparent and accurate valuations, especially in private assets, and embedding Consumer Duty into firms’ governance and operational practices to enhance consumer protection. These priorities align with the FCA’s broader 5-year strategy to support sustainable economic growth, smarter regulation, and improved consumer outcomes. Firms are expected to discuss the letter with their board and executive committee, consider how it applies to their firm, and take action where necessary.
- In line with the FCA's 2024 supervisory priorities, asset managers should invest time and resources in strengthening their governance arrangements, ensuring transparency and accuracy in the valuation of private assets, and embedding the Consumer Duty into their operational practices for improved consumer protection.
- To align with the FCA's expectations for the year, asset managers must proactively focus on implementing the Consumer Duty, particularly for closed products, and should be prepared to demonstrate effective finance management and investing strategies to deliver good consumer outcomes.
