FCA speaks on investment management

Nikhil Rathi has spoken on the importance of the UK keeping its leading position in global asset management. He discussed current international initiatives such as:

  • liquidity risk management, particularly for open ended funds, and recent IOSCO guidance;
  • leverage in NBFIs;
  • margin preparedness; and
  • valuations.

In many of these initiatives the UK is playing a leading or key part. Meanwhile, domestically he spoke on the digital securities sandbox and also work to identify whether there are any significant regulatory barriers to the adoption of fund tokenisation models. The FCA is also participating in a project with the Singapore MAS, FINMA in Switzerland and the Japanese FSA, to share information and knowledge on fund tokenisation.

He moved on to discuss AI and the increased engagement from Big Tech and data service providers. He spoke of some of the main focus areas such as:

  • making sure data does not entrench bias;
  • firms’ governance being able to respond to the adoption of the new technologies;
  • how the FCA can ensure that use of the most advanced AI in trading does not lead to market manipulation; and
  • how to tell whether the most advanced AI applications will report objectively on how rules are followed.

From a policy viewpoint, the FCA thinks that, for now, the governance embedded in the SMCR together with the Consumer Duty outcome tests should be enough, together with the advanced plans to supervise critical third parties.

He then talked about LTAFs – of which the FCA has authorised 4 so far, as part of the FCA’s aim to allow DC pensions in particular access to less liquid investments.

Finally, he noted that the FCA is working its way through assimilated EU legislation to retain, repeal or replace it and is focussing on its own operational effectiveness.

Emma Radmore