In March 2024, the Financial Conduct Authority (FCA) published two documents setting out an updated supervisory approach to the asset management and alternatives sector. These are the FCA's 2024/25 Business Plan (Business Plan) and a “Dear CEO Letter'' titled “Dear Chief Executive Officer of the Company''. Asset Management and Alternatives Oversight Strategy – Interim Update” (Letter to the CEO).
The business plan details the regulatory agenda and strategic priorities for the coming year, and the Dear CEO letter serves as a parallel resource to inform stakeholders of the FCA's regulatory expectations and near- to medium-term focus. To do. A particular focus of both publications is the FCA's emphasis on accountability when assessing the effectiveness of a company's governance. This ensures that a company's board and senior management comply with FCA requirements and reduces the risk of potential harm.
Here we analyze the two documents and highlight areas that asset managers and alternative sector personnel may want to monitor.
business plan
The FCA reaffirms its commitment to maintaining its operational objectives in its business plan.
(i) Protect consumers.
(ii) ensuring the integrity of the UK financial system;
(iii) promote effective competition;and
(iv) strengthen the international competitiveness of the UK economy;
In response to changes in the external environment, the FCA has identified three key issues that it is currently monitoring. These are rising interest rates and persistent inflation. global financial risks (including riskier market-based corporate borrowing and high levels of public debt); geopolitical risks that could cause severe disruption; The FCA is expected to issue further updates on how performance will be measured against the indicators in the summer.
To help meet these external challenges in the coming year, the FCA will reduce and prevent financial crime, prioritize consumer needs and strengthen the UK's position in global wholesale markets as part of its latest focus. We will make three specific promises:
In addition to our ongoing activities, the FCA will be launching new activities to support our new focus, including:
- Increase investment in the FCA's systems to use intelligence and data more effectively when targeting high-risk companies and activities.
- Conducting multi-company initiatives and market research across a range of sectors to raise standards of consumer protection, with a particular focus on supporting vulnerable groups.and
- Encourage innovation and support industry efforts towards T+1 payments to improve operational efficiency.
Letter to CEO
This Dear CEO letter adds to a series of communications published in August 2022 and February 2023 outlining the FCA's phased supervisory strategy for asset management firms primarily engaged in managing and advising alternative investment products. It will serve as a subsequent interim update. The letter to CEOs has been published in light of changes in the external market environment, in particular the increased uncertainty and several market shocks experienced over the past year. The report outlines the FCA's supervisory priorities and notes that the agency expects “a large number of significant business and regulatory changes to be implemented in 2024.”
The table below outlines some key areas that private capital business investment managers need to closely monitor.
Other focus areas
- The FCA remains committed to redressing deficiencies in authorized fund managers' 'valuation' governance, strengthening the enforcement of consumer obligations and mitigating operational disruptions that may adversely impact consumers. There is.
- The FCA will continue to work with the Bank of England on a system-wide exploratory scenario launched in June 2023. The scenario aims to improve regulators' understanding of the behavior of banks and non-bank financial institutions during times of heightened stress in financial markets. .
- The FCA plans to introduce an upgraded funds gateway to facilitate new offshore funds from comparable jurisdictions to be marketed in the UK, which is part of the temporary marketing permission regime established post-Brexit. It will replace.
- The FCA continues to be actively involved in providing thought leadership to organizations such as the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board (FSB), and the FCA continues to be actively involved in providing thought leadership to organizations such as the International Organization of Securities Commissions (IOSCO) and the Financial Stability Board (FSB), and continues to support the UK We are striving to maintain our global competitiveness.
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