FCA has carried out a review of authorised fund managers that provide hosting services to third party investment managers outside of their corporate group.
It concluded that some firms were operating well but others did not meet FCA standards. It found weaknesses in:
- governance structures;
- conflicts of interest management; and
- operational controls.
It also found firms that did not reflect that the “hosted” third party was not the sole fund operator, and firms that did not focus on investor protection.
FCA will be providing feedback to all firms it reviewed, and will be imposing s166 reviews on some. It plans to review progress generally in 12-18 months and is considering asking some firms to hold more capital to guard against the risks within their business. Meanwhile it is considering whether it needs to make any changes to its rules.
While the review focussed on authorised fund managers, a number of FCA’s high-level observations are likely to be of interest and relevant to firms that host managers of unauthorised funds.