FCA sets out asset management and alternatives supervisory priorities

The FCA has published its portfolio supervision letter sent to the asset management and alternatives sector. It notes five priority areas:

• supporting confident investing in private markets: the FCA sees increasing numbers of firms investing in private market capability, and notes the risks of firms valuing private assets inappropriately. The FCA is shortly to publish its multi-firm review on Private Market Valuation Practices which firms should review and assess their policies against. The FCA is particularly concerned that poorly managed conflicts of interest could lead to inaccurate pricing, and will soon start a new multi-firm review looking at this;
• firm and financial system resilience against market disruption: while the most recent exploratory tests have found good resilience in the sector, there are still some common risks, including those posed by actions of NBFIs;
• positive outcomes for consumers: the FCA is continuing its work on unit-linked funds, and is now to start a review of MPS. It finds this is a service line growing “at pace”, and wants to look at how firms are applying the Consumer Duty in MPS to give confidence that investors are receiving good outcomes. It will also look at the targeted support firms can give consumers using the outputs of the advice/guidance boundary review;
• supporting trust in the market for sustainable investment: the FCA will work with firms to understand how they are implementing the labelling, naming and marketing rules and work with outliers to ensure they are using disclosure in the way the FCA intends; and
• reducing financial crime and market abuse: the FCA notes that the increasing trend towards private asset investment needs appropriate risk management to address financial crime risks arising from complex ownership structures. It also stresses that firms must ensure their market abuse controls enable them to meet their MAR obligations.

The letter notes the stresses the sector works under, and highlights that key to safety of the sector will be:

• how firms manage their response to geopolitical and market events;
• robustness of operational resilience given the increasing interconnectedness of the sector and reliance on third parties; and
• how effectively firms’ governance structures are assigning senior accountability for key risks.