Firms’ operations a concern for FCA

In a recent address to the asset management industry, the FCA found ineffective governance to be a root cause for asset managers failing to mitigate material risks. Particularly, the regulator is concerned about operational and financial resilience.

Its latest ‘Dear CEO’ letter stressed how an underinvestment in operations can strain innovation and efficiency, and increase cost, which would consequently impact investors and markets.

Particular concerns are the respondent rate on material operational failures and cyberattacks, which need to be reported imminently. The authority stressed the need for adequate monitoring and response measures. Where service providers are engaged, a firm should ensure that these have sufficient information, skills and knowledge to deliver a service in line with regulatory obligations.

The UK’s financial watchdog announced proactive programmes to monitor and test asset managers’ ability to meet regulatory obligations. Additionally, it reserves the right to further review individual firms via resilience assessment tools such as penetration tests.

Financial resilience
Against the wider economic backdrop, the regulator expects firms to hold sufficient capital and liquidity to operate, with regular internal processes for assessment. While the authority stated the rate of failure to be low, the impact is detrimental.

Therefore, the FCA urged managers to have thresholds in place and made reference to the standards in the Client Assets Sourcebook for firms that hold or control client money or safe custody assets as part of their business. Further, it announced continued assessments with possible targeted monitoring visits.

ESG and sustainable investing
With greenwashing still front of mind for the regulator, it announced tests of whether firms deliver on the ESG and sustainability claims made in their investor communications. A specific focus will be firms previously identified.