Liquidity management
The FCA confirms that effective liquidity management in funds is a central responsibility for authorised fund managers, even where investment management is delegated to a third party.
The FCA also expects firms to take any necessary or appropriate action in light of PS19/24 on illiquid assets and open-ended funds, its letter of 4 November 2019 to the boards of AFMs outlining its expectations regarding liquidity management and the FCA and the Bank of England’s joint review of liquidity risks in open-ended investment funds.
Firms' governance
Firms should ensure that firms' boards engage in robust discussion and challenge around important business decisions, without undue reliance on group structures. In addition, firms should recognise and take steps to mitigate harm arising from any conflicts of interest between affiliates, notably between an authorised fund manager and any delegate investment manager.
Firms should have refreshed and improved their approach to governance in line with the Senior Managers & Certification Regime (SMCR) including through clear lines of accountability and responsibility for senior management functions (SMFs). The FCA will review firms' governance and SMCR implementation in the first half of 2020.
Asset management market study
Following the Asset Management Market Study, fund managers should carry out value assessments on their authorised funds. The FCA will review firms' work in this area in the first half of 2020. Funds’ objectives should also be clear, fair, not misleading and comply with new rules around objectives disclosure.
Governing bodies of managers of authorised funds should also ensure that they have at least one quarter (and no fewer than two) independent members. The FCA will look to see evidence of meaningful challenge by the independent members including on costs, fees and product design.
Product governance
Firms subject to product governance requirements should ensure that products are designed with the best interests of a specified target market in mind and do not include features that are manifestly not in the interests of customers (e.g. funds tracking an undisclosed index or where fees exceed target returns). The FCA is currently reviewing firms' compliance.
Where authorised funds are managed by fund managers which are not in the same group as the investment manager (including host ACDs), the FCA has concerns that such fund managers may not be carrying out their responsibilities properly, particularly in respect of conflicts. The FCA is undertaking a further review of these types of arrangements.
LIBOR transition
Firms should also be aware of their reponsibility to ensure an effective transition away from the London Interbank Offered Rate (LIBOR) and should be planning on the basis that LIBOR will cease from the start of 2022.
The FCA has previously indicated in a separate communication that, where appropriate, firms subject to SMCR that are affected by the LIBOR transition should identify the senior manager responsible for overseeing transition away from LIBOR and detail those responsibilities in that senior manager’s Statement of Responsibilities.
Operational resilience
Firms should manage their technology and cyber risk appropriately, including through appropriate oversight of third party firms and intra-group service providers, taking into account the FCA's review of technology resilience for asset managers. The FCA may also carry out proactive technology reviews on firms which have a greater risk of causing harm.