FCA has published the results of a review that looked at product governance in 8 asset management firms who are manufacturers of products. It examined particularly how the firms take into account the interests of end clients throughout the product lifecycle.
The products were all UK-authorised CIS, available to retail customers on both advised and non-advised bases, and included a range of strategies.
FCA found some managers were not complying with the requirements, thereby increasing the risk of investor harm. It also found the managers rely too heavily on intermediaries to give them information on the end users, but that the distributors rarely in fact pass on the relevant information. FCA says managers and distributors must prioritise proper cooperation and information sharing.
The study looked at:
- product design: FCA found insufficient attention to the negative target market, and poor conflict of interest controls
- product testing: differing practices in scenario and stress testing meant some practices are more effective than others, and FCA found that costs and charges disclosures can generally still be improved
- distributors: FCA found the quality of due diligence over distributors to be variable, and that all managers faced difficulties getting information from distributors. The way in which firms monitored data and M also varied
- governance and oversight: while nearly all firms carried out annual assessments, the levels of oversight and challenge varied. Where firms had training programmes in place, the quality of training also varied.
FCA is likely to take matters further, including whether it needs to make changes to its rules, and whether it needs to take action against firms for any rule breaches.