FCA findings from smaller asset managers and alternatives business model review

The UK Financial Conduct Authority (FCA) has published findings of its review of smaller asset managers and alternatives business models, together with a press release. The review formed part of the FCA's alternatives supervisory strategy as outlined previously in 2022 in a portfolio letter. The FCA publication includes examples of good practice, to help new market entrants, smaller firms and growing organisations benchmark sound risk management practices and better understand regulatory expectations to manage risks and enhance consumer protection.

The FCA's findings focused on three topics where areas for improvement were identified:

• High-risk investments (HRIs). Most firms offering HRIs were able to clearly categorise their products, while some firms did not have sufficient processes in place to ensure HRIs were only sold to clients if they are appropriate. The findings included specific commentary in relation to financial promotions, product, investor and client categorisation and investor assessments and controls.
• Conflicts of interest. Most firms managed conflicts of interest well, but many others had ineffective arrangements. Smaller firms where senior staff held more than one role often failed to recognise conflicts from their overlapping responsibilities. Where conflicts cannot be prevented, they were required to be documented, reviewed and disclosed.
• The consumer duty. Most firms are successfully integrating the consumer duty into their activities, although some smaller firms still require understanding on how the duty applies to their business model as they have not yet adjusted their processes.
• Where weaknesses have been identified, the FCA is working with those firms to make improvements and will continue to monitor their conduct. The FCA expects boards and management committees to review the findings so that they can manage key risks, deliver good outcomes for consumers and support economic growth.

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